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I f 

Lo Commission on international Excliange. of 

ttie United States of America. 



A New Monetary System 




Commissioner in China. 


CHARLES A. CON ANT, > Commissioners, 



Sao-ke Alfred Sze, . c- ^ . • ^t- 

^ ^ r Secretaries in China. 

Albert C. Durand, 




* - 

JAN 1 'J 1945 



I. — Introduction. 

1. Purpose of the pamphlet i 

2. Two plans suggested 8 

3. The process of establishing a monetary system 9 

4. Outline of the American plan 11 

II. — Uniformity of Coinage. 

Necessary governmental action 12 

III. — Methods of Fixing Values of Subsidary and 

Minor Coins. 

1. Business 6xes value 13 

2. Government determines business acts by 

(a) Making subsidiary and minor coins less 

^ valuable as bullion 14 

^ (b) Limiting quantity 14 

>■ (c) Always receiving coins at face value 14 

^ (d) Interchanging small coins for laTge, and vice 

^ versa 14 

<^ (e) Making coins legal tender 14 

, 3. If above plan followed, especially (d), value will be 

maintained 14 

IV. — Advantages of a Fixed Gold Value for the 

Chinese Currency. 

1. A fixed rate of exchange 15 

(a) Effect on prices in foreign trade 15 

(b) Effect on internal trade 15 

(c) Effect on quantity of exports and imports 16 

2. Coinage profit 17 

3. Increase of investments 17 

4. Strengthened credit 18 

5. Certainty regarding taxes 19 

V. — Reasons for Adopting a Gold Value for the 
Silver Coins at the Beginning of the 

1. Government profit 19 

2. No disturbance of business 20 

3. If introduced at silver value disturbance will follow. 20 

(a) Result of fall in price of silver. Case of India. 20 

(b) Result of rise in price of silver 21 

(c) Result of raising value of coins after circu- 
lation established 21 1^ 


VI. — Methods of Maintaining the Silver and 

Copper Coins at a Fixed Vai.ue with 

1. Governmental control of coinage 22 

(a) Value depends upon quantity '. 23 

(b) Value depends upon confidence 24 

2. Universal acceptance of coins by Government 25 

3. Make coins legal tender 25 

4. Governmental sale of gold exchange 26 

(a) Gold needed for payment of foreign debts 

only 26 

(b) Bankers will use coins if they can buy ex- 

change 27 

(c) Government rates for exchange 27 

(d) Profits from exchange 28 

5. Coins furnished in exchange for gold at home or 

abroad 28 

VI. A. — How Can a Forty-eight Cent Dollar be 

Made by the Government to Pass for 
Fifty-five Cents Gold. 

Specific illustration of VI 28 

VII. — The Gold Reserve. 

1. a Gold reserve necessary 31 

2. Amount of reserve 31 

3. The uses of the reserve 35 

4. The means of obtaining a reserve 35 

(a) Profit on coinage . 35 

(b) Contributions 36 

(c) Loan 1 36 

(i) Basis of increased returns from 

customs 37 

(2) Opium, spirits, etc 38 

(3) Land tax 38 

(4) Mines 38 

(5) Railroads 40 

(6) Other sources 40 

5. The means of maintaining the reserve 40 

(a) Gold paid in 40 

(b) Sale of silver bills on China 40 

(c) Buy gold exchange 41 

(d) Profits on exchange 41 

(e) Sale of silver on hand 41 

Note. An opium farm for some of the cities of China, 42 

VIII. — Cost of Establishing the New Monetary 


Estimates four dollars per capita 44 

Estimates two dollars per capita 46 

IX, — Administrative Organization. 

1. Conditions of success 50 

2. How to secure these conditions 50 

3. Officials needed 51 

(a) Monetary Commission or Board of Revenue.. 51 

(b) Expert adviser (Controller) 52 

(c) Deputy Controller 52 

(d) General Accountant 52 

(e) General Superintendent of Mints 53 

4. National bank 53 

(a) Powers 53 

(b) Organization 55 

(c) Officers . 55 

(d) Branches and agencies 55 

(e) Management 56 

(f) Profits 56 

X. — Revision of Treaties. 

1. Regarding the importation of foreign coins and of 

bullion 56 

(a) Reasons for checking importation.: ^ 56 

(i) To secure and keep one uniform 

system . 57 

(2) To keep up value of silver coins 57 

(b) When regulate importation 58 

( I ) When fixed number coined * 58 

{2) When special board agrees 58 

2. Methods of negotiation 59 

(a) In China . 59 

(b) In foreign countries 59 

XI. — Comparison of the Two Plans of Starting 

THE Monetary System 59 

XII. — To Begin the Monetary System on a Gold 

Basis Without a Loan. 

1. At same rate of coinage as with loan 62 

2. At slower rate than with loan. 64 

XIII. — Coinage Specifications 66 

XIV, — Foreign Experts for the Chinese Mone- 
tary System. 

1. Difficulties of the Task. Reasons for Foreigners 68 

(a) Few Chinese experts 68 

(b) Need of confidence 68 

2. Relative need for experts under the two systems 69 

(a) Under silver system 69 

(b) Under gold system 69 

3. Experts needed especially at beginning of system 70 

(a) Making plans difficult 70 

(b) Making plans most important part of work 70 

(c) Mistakes at beginning often irreparable 71 

4. Selection of experts :. 71 

(a) For ability and fitness only 71 

(b) Contracts definite 71 

(i) Regarding time 71 

(2) Regarding work 71 

(c) Associate Chinese with experts 71 

(d) Establish training school under experts 72 

XV. — Summary of Points in Connection with the 

Chinese Monetary System. 

1. Comparison of two systems 72 

2. Expenses compared 74 

3. Method of starting system 75 

4. Ix>an and security 76 

5. Engagement of experts 76 

6. Contracts with experts 78 

7. Relation of foreign Governments 78 

XVI. — Government Procedure. 

1. The Appointment of experts 79 

(a) Controller of the Currency 79 

(b) General Superintendent of Mints 80 

(c) Geneial Accountant 80 

2. Controller to prepare and submit drafts of edicts 81 

(a) General currency law 81 

(b) Minting law 81 

(c) Gold reserve law 81 

(d) Banking laws 81 

3. Regulations regarding loan 81 

4. Regulations regarding reserve ^ 82 

5. Modification of treaties 82 

6. Organization of national bank 82 

XVII. — Second Summary : Answers to Objections ; 

AND FiNAiv Suggestions. 

1. Summary of work of expert organizer 83 

2. Delay inadvisable 84 

3. Objections to system answered 84 

(a) People too ignorant 85 

(b) China has no gold 85 

(c) Foreigners will not receive new coins at gold 

value 85 

(d) System will benefit foreign nations 85 

(e) China cannot maintain value of coins 86 

(f ) Will drive cash shops out of business 86 

(g) Exporters will not gain from rise of gold 86 

(h) Foreign expert help needed 86 

4. An expert can modify his plans to suit special needs__ 87 

5. Success sure if plans well managed and supported 87 



I. Purpose of the pamphlet. — Several months ago the Com- 
mission on International Exchange published at Shanghai a pam- 
phlet, " Memoranda on a New Monetary System for China," pre- 
pared by Mr. Jenks. In that pamphlet were given the reasons why 
the United States Government had appointed the Commission on 
International Exchange, a very brief outline of the plan which 
was suggested for the consideration of the Chinese government 
together with some arguments regarding the plan, and a brief 
statement of the work which the Commission had done in 
Europe and elsewhere. It has been found that, owing to the 
brevity of the pamphlet, several parts of it were misunderstood, 
especially by Chinese ofl&cials and business men, and very 
many inquiries have been made for a more detailed discussion of 
many of the points therein raised. 

As a representative of the American Commission on Inter- 
national Exchange, the writer of that pamphlet has spent several 
months in investigating the currency question in China with the 
aid of very many officials and business men in the different parts 
of the Empire and in discussing the outlines of some practicable 
plan for a new monetary system especially with the members of 
the Monetary Commission appointed by the Imperial government. 
It is the purpose of this pamphlet to elucidate many of the points 
touched upon in the first pamphlet by printing, with here and there 
slight corrections and elaborations, a series of papers handed to 
the Chinese Monetary Commission to form the basis of discus- 
sions with them. It is thought that by so doing a much more 
definite view than was presented in the earlier pamphlet may be 
obtained of the plan which it had seemed to the Commission on 
International Exchange wise to submit to the Chinese govern- 
ment for its consideration.* This method will of course, involve 

* A translation into Chinese of the first pamphlet, made by Mr. Sao-Ke 
Alfred Sze, one of the secretaries of the Commission on International Ex- 
change, was published at the same time. This pamphlet will also be pub- 
lished in Chinese through the courtesy of their Excellencies Lii Hai-H wan and 
Sheng Hsiian-Huai, Treaty Commissioners of China. The translations into 
Chinese have been made for the most part by Mr. Sze. Chapters X., XII ', 
XIII., XVI. were translated by Mr. E. T. Williams, Chinese Secretary of 
the American Legation at Peking. 


considerable repetition and will destroy the unity of the discus- 
sion. On the other hand it will emphasize the points which 
have been made most prominent in the discussions. 

2. Two plans suggested. — It will be noticed in the follow- 
ing memoranda that a rather sharp contrast is drawn between 
two possible plans of procedure on the part of the Chinese govern- 
ment — (a) the establishment of a new, uniform monetary system, 
consisting of silver and copper and possibly nickel coins, on the 
silver basis, the question of the establishment of these coins at a 
fixed value with gold being a matter left for future consideration, 
with the definite idea, nevertheless, that the ultimate aim of the 
government is the establishment of the system on a gold basis : 
(b) the establishment of a monetary system consisting of silver, 
nickel and copper coins which would be issued by the Chinese 
Government at a fixed value in terms of gold and maintained 
at that value thereafter. 

Very many of the persons who had earlier been giving advice 
to the Chinese Government and who had been writing on the 
subject of monetary reform in China had recommended the first 
system, believing that the establishment of a uniform silver cur- 
rency was a useful, if not even a necessary, preliminary first 
step toward the establishment of a monetary system on the gold 
basis ; and the example of India was cited as a case in point. It 
was the belief of the American Commission, after making a detailed 
study of the question, even before its representative went to China, 
that it would be much easier for China to follow the second plan 
and to establish its coins at a fixed value with gold from the be- 
ginning, as the United States has done so successfully within the 
last year in the Philippine Islands. The American representative 
found, on taking the matter up for discussion with the Chinese 
Government, that this Government, very naturally, not having 
had, as yet, opportunity of studying the subject thoroughly, and 
very properly desiring to proceed gradually on so important a mat- 
ter, had practically adopted the views of those who thought it was 
best first to establish a uniform silver currency without reference 
to its gold value. In consequence, a considerable part of the 
energies of the commissioner were devoted to the discussion of 
this question. It is a pleasure to record that the views of the 
American Commission seem finally to have met the approval of a 
goodly number of the Chinese officials, as well as of several of the 
English writers and business men who, naturally looking first at 
the example of India, had advocated, some of them in print, begin- 

ning on the silver basis. Several of these men have now said 
that a further study of the question has convinced them that the 
plan suggested by the American Commission will be the easier 
for China and the wiser plan for her to follow. There is good 
reason to believe that further consideration of the subject in de- 
tail in the light of the experience of the Philippines and of the 
changed conditions of the silver market during the last few years 
would lead substantially all to this conclusion. 

It is difficult to follow the course of reasoning of some who 
say that it is impossible to put a monetary system on a gold basis 
until you have a system complete. The gold value attaches to 
each of the coins. It is immaterial logically whether that value 
is given to them when they are issued or later. Practically, as 
will appear in the following pages, it is much simpler and more 
profitable to give them the gold value one at a time as they are 
issued, than to give it to them all at once when millions are al- 
ready in circulation with a well known silver value. 

3. The process of establishing a monetary system. — So 
much has been said regarding the ' * gradual * ' establishment of a 
monetary system in China and of taking one step at a time, that 
it seems worth while in this introduction to consider briefly the 
nature of the process of the establishment of a monetary system, 
in order to show how misleading the figure of speech of * * going 
forward step by step' ' has been. The subject will be made clearer, 
of course, in the detailed discussions which follow. 

A monetary system, made up of copper, subsidiary silver, stand- 
ard silver and gold coins — to omit representative money like bank 
notes — is a single, complete, organized whole which must be built 
up gradually. The building of this structure is not like going on a 
journey, in which one can take one step forward, then another 
step forward, and another until the journey's end is reached. If 
it were so, one should begin first by taking the step which will 
lead to the copper coinage, and One should completely establish 
the new copper coinage throughout the country until the people 
became used to that. The next step should then be taken lead- 
ing to the subsidiary silver coinage, which is of less pure silver 
than the standard coins. One should then pause until the copper 
coins have been given a fixed value in terms of the subsidiary sil- 
ver. One should then take the next step forward to the intro- 
duction of the standard silver coins, and should then wait until 
the subsidiary silver and copper coins have been given a fixed 
value in terms of the standard silver coins. Finally, one should 


proceed to the fourth step of introducing gold either in the form 
of coins or in the form of a gold reserve which can be used as a 
standard. The country must then wait until the standard silver, 
the subsidiary silver and the copper coins are given a fixed value in 
terms of gold. The journey would then be complete. When 
one analyzes this process, including the silver and copper, it is 
seen that the idea is absurd. Nevertheless it is equally absurd to 
begin with silver and afterwards to go to gold, as it would be to 
begin with copper alone, proceed to subsidiary silver, and then to 
standard silver. The process in both cases is identical. 

The establishment of a complete monetary system is rather 
like building a house with four sides, one wall of which is repre- 
sented by the copper coinage, a second wall by the subsidiary sil- 
ver coins, a third wall by the standard silver coins, and the fourth 
by the gold. The structure must be built up gradually, but it is 
wise to build the four sides up together, so that the relations be- 
tween them will be the same from the beginning, and that, as the 
building rises, there will be no disturbance in their relations one 
to the other. In the plan which has been proposed, twenty years is 
allowed for this period of building the structure. The cost has 
been estimated in detail for the first five years. The cost in suc- 
ceeding years would be relatively less and would need no special 
provision. The system would pay for itself after the first five 
years. But the completion of the monetary system is planned to 
take twenty years, surely a long enough time, and the process 
is a gradual one. 

The plan of beginning on a silver basis to change to a gold 
basis later is like building up three walls of the house together, 
omitting the fourth wall. It will take practically as many years 
to build the three walls as it would to build the four. After the 
twenty years are completed, unless some specific provision has 
been made for the accumulation of a gold reserve, it may take 
many years longer before that -is accumulated. When the gov- 
ernment begins to establish the gold standard, that is to build the 
fourth wall of the building which has been left out, all of the ar- 
rangements of the house, which have been made heretofore with 
reference to having one side open to the air, must be altered to 
suit the new conditions, with the result that — to drop the figure — 
there will be a complete upsetting and disarrangement of the busi- 
ness relations of the country. In other words, the whole system 
of prices, which has been adjusted to the silver standard, must 
be upset and readjusted to the gold standard. That process of 


readjustment will continue several years at best. In consequence, 
if the government adopts the silver plan, it is simply postponing 
indefinitely giving to China a good monetary system, and it is 
increasing vastly the difficulties, as is explained in detail later. 

In the plan which the Aiherican Commission has proposed, in 
five or six years there will be enough of the new money in circu- 
lation so that prices in all the treaty ports and in all internation- 
al traffic will be adjusted to the new gold standard, so far as the 
people have any desire so to adjust them. The gradual exten- 
sion of the system into the interior as the new coins increase in 
number will involve no new disturbances. The change from a 
standard of prices fixed on bullion silver to those fixed on a 
standard dollar with a gold value is not appreciably more difficult 
than the change from prices on the bullion standard to those on a 
dollar standard on the silver basis. There must be at least one 
disturbance of prices ; it will be much less on the whole if it is 
taken directly from the beginning, and it will save completely the 
trouble and expense of a second readjustment, from the standard 
silver dollars to gold after the one from bullion to standard silver 
dollars has been made. To begin with the silver plan with a gold 
standard only for the indefinite future is like setting up an engine 
to run imperfectly for years without the governor with the idea 
that this can be attached later. The engine should have all its 
essential parts when it begins to run. 

4. Outline of the American plan. — It is perhaps wise to in- 
dicate in outline at the beginning the main points of the plan 
which has been advocated by the American Commission in order 
that the papers that follow may take their places as a more de- 
tailed explanation of a system already outlined. The following 
is therefore submitted : 

(a) The Chinese government to assume supervision or con- 
trol of the various provincial mints so that the entire coinage 
system of the Empire will be managed in harmony. 

(b) The establishment of one uniform system of imperial 
coins, consisting of silver coins, nickel coins and copper coins, 
which shall be uniform throughout the Empire, and in due time 
a legal tender for all obligations, public and private. The mint- 
ing of all other coins to be stopped. 

(c) These silver, nickel, and copper coins to be established on 
a decimal system and to be maintained at proportionate values 
one to the other. 

(d) A gold unit consisting of a fixed number of grams or 


decigrams of gold to be established as the basis of the currency. 
The silver and copper coins to be issued at fixed values pro- 
portional to this unit, and to be maintained thereafter at this 
fixed gold value. It is understood that gold will not be used in 
general circulation within the country itself, although a small 
amount may be coined, but that the currency shall be the silver 
and copper coins above mentioned, and bank notes based upon 

(e) The establishment of a gold reserve sufficient to maintain 
these coins at the fixed gold value, but not necessarily to furnish 
a gold circulation for the country itself. 

(f ) The Chinese government to manage this system in accord- 
ance with the principles established elsewhere by successful ex- 
perience ; and, therefore, in order to secure the necessary confi- 
dence of Chinese and foreign business men, to employ to assist 
in the establishment of the system foreign expert advisers of the 
highest standing whose reputation and work will secure confi- 

(g) The establishment of a national bank, of subordinate 
treasury agencies, and of other means that may be recommended 
by the experts and that may prove essential for the successful 
carrying out of the system. 


Action will need to be taken by the government covering the 
following points : 

1 . Declaring that there is to be established a uniform system 
of coinage, arranged on the decimal plan, and that the coins will 
in due time be made legal tender throughout the Empire for the 
payment of public and private debts. 

2. The central Government assumes charge of all mints ; this 
action to take effect as soon as compensation is determined. 

3. The provinces, on agreement with the Viceroys and Gov- 
ernors concerned, are to receive due compensation for all the 
mints surrendered to the central Government ; this compensation 
presumably to be in the form of a certain amount paid each year 
for a fixed number of years, or a remission of taxes of a fixed 
amount for the same period. 


4- All coinage of present coins by the different mints to be 
stopped immediately, unless it should be decided to adopt into the 
system the ten cash pieces and to continue their coinage tempo- 
rarily. That would probably not be wise. 

5. Expert appraisers, presumably three, two from the mints 
now in existence in China, and the third to be hired presumably 
from abroad, to be appointed to appraise the value of the mints 
on the basis of their normal output as a basis for agreement with 
the viceroys. This output to be gauged in part by what they 
have been doing in the past, but especially by the fair normal 
capacity of the mints themselves. 

6. These same appraisers to make detailed recommendations as 
to the mints that can be used most profitably in the future, as to 
those which should be closed absolutely, and as to the transfers 
of mint machinery or the purchases of new machinery that should 
be made. 

7. Detailed reports of all coins of all denominations heretofore 
issued by each one of the mints to be secured from the various 
Viceroys and Governors concerned. 

8. The best estimate possible to be secured of the money now 
in use, — (a) coins of silver, (b) silver bullion, sycee, (c) gold of 
whatever form, (d) cash of whatever form, cents, etc. 

9. Regulations to be made regarding the denominations of the 
various new coins, with their exact weights in silver, nickel and 
copper, the amount and quality of the alloy, etc. 




1. Business fixes value. — The business men will ultimately 
^1^ the values at which the people will take the coins, since the 
people use the coins in buying and selling with the merchants, 
bankers, etc. , who in such matters are more influential and pow- 
erful than the common people ; but 

2. Government may determine business acts. — The 
Government can make such arrangements regarding coinage and 
the receipt and issue of coins that the business men and people 
will find it to their advantage to accept and use the government 
valuations : 


a. Make subsidiary and minor coins less valuable as bullion, — 
Let subsidiary and minor coins, both silver and copper, never be 
proportionately more valuable as bullion than are the large 
coins ; usually they may be much less valuable. 

b. Limit quantity, — So far as is practicable suit the quan- 
tity of coins issued to business needs. At first this cannot be 
measured accurately ; later, experience will show the right 

c. Always receive coins at face value, —Let the Government 
always receive the coins at their face value in the payment of 
taxes. For this purpose the quantities of subsidiary silver to be 
received at any one payment might be limited to sums of not 
over, say $20 for 50 cent pieces, and to, say, $10 for 20 cent and 
10 cent pieces. Quantities of copper to be received at one pay- 
ment may be limited to, say, $5 for 20 and 10 cash pieces ; to $1 
for smaller pieces. 

d. Interchange small coins for large and vice versa. — Let the 
Government at its established agencies keep a good supply of all 
kinds of coins, and exchange them free of charge one for the 
other for all applicants in reasonable amounts, (say as above in 
receiving taxes), dollars for subsidiary silver, nickel or copper 
coins, and vice versa, 

e. Make coins legal tender, — Ultimately when the value is 
firmly established at the government rate, let decrees be issued 
making it legal for every debtor to pay his debts in whichever 
coins he chooses within the limits set in (c). 

3. If above plan followed, especially (d), value will be 
maintained. — If there are plenty of places where these exchanges 
can be made, no one will give eleven 10 cent pieces for a dollar when 
at the government office he can always get a dollar for ten of 




In the Imperial Edicts of April 22, September 7, September 
26, and September 29, 1903, the encouragement of commerce 
and industry was emphatically announced as the present policy 
of the Government, and the Board of Commerce was established 


in order to carry out that policy. Perhaps in no other single 
way can this purpose be accomplished so promptly and surely 
as by the establishment of a monetary system which has a fixed 
value with gold. It is worth while to note the following benefits 
which would come therefrom. 

I. A fixed rate of exchange. — It removes the fluctations 
in exchange. This makes business much more secure and takes 
away from it the gambling element. During the year 1903 the 
Shanghai tael varied in average monthly value from 2 shillings 
i^ pence in March to 2 shillings and 7 pence in October, a 
variation of 5^ pence. Often there are strong fluctuations in 
one day with no cause that can be foreseen. 

In Japan there used to be similar fluctuations, but they have 
practically entirely ceased. For example, some two years and 
a half after the fixing of the rate of exchange the fluctuations 
of the yen were only between 2 shillings 0.1250 pence and 2 
shillings 0.8125 pence ; that is to say, less than seven-tenths of 
a penny in two and a half years. This practically eliminates all 
business risk from this source. 

(a) Effect on prices in foreign trade. — It should be noted 
also that this removal of risk from business will have a 
tendency, on the one hand, toward increasing the prices paid 
by foreigners for Chinese goods for export, and, on the 
other hand, toward lessening the prices for goods imported into 
China from foreign countries for the use of the Chinese people. 
With the risk eliminated, the competition of merchants, both 
importers and exporters, will lead them to take less average 
profits than now. 

(b) Effect on internal trade. — These advantages of stability 
in foreign trade will be reflected also to a greater or less ex- 
tent in domestic trade, while the favorable effects upon prices 
will be felt in all parts of the country to a noteworthy ex- 
tent in the internal trade. The chief curse to internal trade 
now is the variety of taels and fluctuations in internal exchange. 
While a uniform silver currency would to a great extent cure 
this evil, it can never be permanently cured until the silver 
currency is given a gold basis. A change from a uniform silver 
to a gold basis after a few years would produce a business 
upheaval worse than a present change from a variety of taels to 
a uniform silver currency which has a fixed gold value. No 
especial difficulty will be felt now in introducing a new cur- 
rency on either a gold or a silver basis. It will seem but one 

^ I 


more added to many existing standards. When there is once 
uniformity, a change of basis with a complete upsetting of es- 
tablished prices means a crisis. 

(c) Effect on quantity of exports and imports. — This removal 
of risk from business will tend also to increase decidedly 
both the import and export trade of China. After Russia 
had established her system on a gold basis her foreign trade 
increased very decidedly, and a similar result was shown in 
Japan. Count Matsukata, the Japanese Finance Minister under 
whom the change was made, says that on account of the 
freedom from fluctuations in the value of coinage and also in 
prices, commercial and industrial enterprises came to make 
a healthy and orderly development, while trade with the gold 
standard countries, which comprises the larger part of Japan's 
foreign trade, for the same reason was also making a very 
healthy growth. Even as regards the trade with the silver 
countries, where people had feared that, on account of the change, 
the country might be at a disadvantage, there was a considerable 
increase in the foreign trade. It was his opinion that trade 
would, on the whole, be benefited. 

The statistics of Japan seem to show that the change to the 
gold standard does not itself increase imports, on the whole, 
more than it increases exports, as some people argue. On ac- 
count of the large speculative business in Japan at the time of 
the payment of the Chinese indemnity, during the year preceding 
the establishment of the gold system and for two years thereafter 
there was a very decided increase in the imports as compared 
with the exports, but since that time there has been a decided 
decrease, so that in 1899 and 1901, for example, the imports ex- 
ceeded exports by only a very slight amount, in 1900 there being 
again an increase. The figures seem to show that the relative 
quantity of the imports as compared with the exports are due 
mainly to other factors and practically not at all to the quality 
of the currency. The figures regarding the excess of imports 
and exports relatively from 1894 to 1901 inclusive are as follows : 


Excess of Imports 1894 Yen 4,235,869 

Exports 1895 •' 6,851,600 

Imports 1896 ** 53.83 '.714 

1897 *• 56,165,694 

1898 ** 111,748,404 

1899 ** 5.472,032 

1900 *' 82,831,852 

1901 *' 3,467,102 

^ The Fourth Financial and Economical Annual of Japan, 1904, p. 67. 

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The law establishing the new gold system was passed in 
March, 1897. ^^ went into operation September 30, 1897, but 
it was not fully in effect until July, 1898. The great excess of 
imports, therefore, is as much during the period of silver coinage 
as of gold, and there was a great fall the year after the estab- 
lishment of the new system, the excess of imports almost 

2. Coinage profit. — Giving to the Chinese coins a fixed 
value in gold would give to China a very large profit from the 
coinage. At the present prices of silver and copper, the profit 
on each dollar coined, on the average, may be conservatively 
estimated at 20 per cent. During the last year the profits in 
the Philippines have been over 19 per cent., and the touch of 
the subsidiary silver coins there has been higher than would be 
necessary for China. Probably, also, the amount of copper 
coins, on which the profit is much greater than on the silver, would 
be larger in China than in the Philippines. The Vice- Minister 
of Finance in Japan, Mr. Sakatani, has estimated that China 
might count on an average profit of 30 per cent. Estimating 
the profit at only 20 per cent, on a probable output of 250,000,- 
000 dollars of her new coins within the first four or five years, 
China's gain would be 50,000,000 dollars. This should be made 
to form a very large proportion of a gold reserve. 

Moreover, if every effort were made to keep all of the coins 
at a fixed value one with the other, it would be possible to issue 
the subsidiary coins at a lower touch than if they were to have 
their value fixed by ordinary custom among the merchants. 
Whether the coins are given a fixed gold value or not, effort 
should be made (and the methods are not at all difficult) to 
keep up the value of the subsidiary coins to their face value, 
but if the coins were given a fixed gold value this would be 
absolutely essential and would certainly be done. 

3. Increase of investments. — Fixing the value of the 
coins in terms of gold would, beyond question, increase such in- 
vestments of a conservative nature both foreign and native, as 
the Chinese government would wish. Count Matsukata, in re- 
ferring to the result of the reform of the currency in Japan, said 

that the tendency had already promptly set in to invest in that 
country at low rates of interest capital from gold standard 
foreign countries, thus supplying the lack of capital in the 
country and giving a powerful stimulus to the development of 


industry. This was seen within two years after the establish- 
ment of the system. 

Statements were likewise made to the representatives of the 
Mexican Government by leading financiers in New York that 
they had money ready to the amount of at least $50,000,000 
gold in specific cases which they mentioned, to invest immedi- 
ately in Mexico as soon as the fixed value for the Mexican coins 
should have been established. Doubtless this sum would have 
been very largely increased. China might well expect much 
greater results owing to the much greater opportunities for 
investment here and to the larger extent of her undeveloped 

Unless there are political considerations which lead to invest- 
ments, money will be offered much more freely for building rail- 
roads, opening mines and making public improvements of all 
kinds if China has a sound monetary system on a gold basis. 
The conservative business men of the industrial nations will 
gladly invest when they can make certain calculations. Before 
then we may expect investments rather from speculators or from 
those who have some poUtical schemes to further. After rail- 
roads are built and trade on a large scale in the interior is estab- 
lished, a sound coined money on a stable basis will be a necessity. 
Trade cannot grow satisfactorily under present currency condi- 

4. Strengthened credit. — Probably no other action on the 
part of the Chinese Government would strengthen its credit among 
foreign nations so much as the establishment of a sound mone- 
tary system which would fix the value of its money in terms of 
gold. This would enable her to borrow money much more 
cheaply than at present, and quite possibly to refund some of her 
foreign debts at lower rates of interest. 

The experience of Japan, as stated by Count Matsukata, was 
this : Within three years after the system was established, he 
says, * * It may be regarded as a happy omen that the Govern- 
ment was able to raise recently a foreign loan of ;^ 10,000,000 in 
London at 4 per cent, interest." He ascribed this result to the 
improved credit of the country, due to the establishment of the 
new system. If China could refund her debts which now bear 
interest above four per cent., at that rate, it would effect a 
saving, if we assume the tael to be worth only two shillings and 
six pence, of 3,136,400 taels a year. That alone would more 
than pay the interest on all the loan she would probably need to 


make to establish the new system with an ample gold reserve, if 
she desired to adopt a system with a loan. 

5. Certainty regarding taxes. — Beside the possibility of re- 
funding her debts, if the price of silver should continue to de- 
cline, China could pay off her present debts much more easily 
with her currency given a fixed gold value. During the past 15 
years the decline in the value of silver has lessened the income 
of China, as compared with what it would have been on a gold 
basis, by nearly one-half, the average value of the tael in 1890 
being 5 shillings 2}^ pence, and during the year 1903, 2 shillings 
Tfi pence, while it has been at times even considerably lower. 
As soon as the new monetary system is established, there will be 
no further decline in the value of the taxes collected ; and even if 
silver should not decline further, there would be a decided ad- 
vantage to the Government in being able to reckon accurately on 
the value of the taxes collected for the purpose of paying for- 
eign obligations. 

The chief danger to China in her relations with foreign coun- 
tries comes from considerations of a financial nature. If she at 
any time fails to pay her obligations, the danger of aggression 
will be very great indeed. On the other hand, in no other way 
can she so strengthen her military force or her resources in other 
directions which would be available for defense against aggression 
as by improving her financial situation. In no other way can 
her financial situation be improved so rapidly as by establishing 
a monetary system which will have the full confidence of Chinese 
business men as well as of foreigners, and such a system can 
never be satisfactory to either Chinese or foreigners until the 
coins have a fixed value in terms of gold. It is clearly within 
the power of China to establish such a system in the immediate 
future by taking energetic measures. 



I. Government profit. — The Government will gain a profit 
from coinage of some fifteen per cent, more than would be possi- 
ble if the system were introduced on the silver basis. On the 

4 I 


gold basis the average profit should be at least 20 per cent. ; on 
the silver basis, possibly five per cent. Unless this profit is made 
when the coins are first introduced, it can never be made after- 
wards. This additional gain should amount to a yearly profit of 
$6,000,000 or thereabouts throughout the introduction of the 
system, say ten to twenty years. It would be increased or less- 
ened in proportion to the rapidity of coinage and in part to the 
price of silver. It would last as long as the new coinage contin- 
ued to be introduced. Can the Chinese Government in its present 
financial situation afford to neglect this source of profit ? 

2. No disturbance of business. — If the coins are intro- 
duced at their gold value while business is being done with so 
many other kinds of coins and with bullion, there will be no 
appreciable disturbance of business. Prices are now fixed in so 
many different kinds of moneys, that an addition of one kind 
more would not be noticeably detrimental. It would be only 
like introducing a new kind of tael. 

3. If introduced at silver value disturbance will fol- 
lov^. — If the coins are first introduced at their silver value and 
an attempt is later made to give them a gold value, the result is 
almost sure to be a great disturbance of business over a period of 
several years. 

(a) . Result of fall in price of silver. Case of India. — If it were 
certain that the value of silver bullion would continue to fall, so 
that the government could simply fix the gold value of the new 
coins at the silver value of the day when the Government starts 
on the gold value and that the silver bullion value of the coins 
would then continue to decline, there would be no serious dis- 
turbance of business. Both Japan and India were extremely for- 
tunate in fixing their gold values under such circumstances. At 
that time, however, not only was silver bullion steadily falling 
in the world market, but it was known that the stoppage of the 
free coinage of silver in India would certainly cause a fall in 
silver bullion, so that India might safely count on that result, 
inasmuch as its action would lessen for the time being the demand 
for silver by some ten or twelve million ounces yearly. 

At present, however, in China the situation is entirely differ- 
ent. No act of China's is likely to have any effect toward lower- 
ing the price of silver, and even if its action were to have that effect, 
this would take place immediately upon the introduction of the 
new system, so that the gold value should be fixed then rather 
than later. In the second place the condition of the silver market 


for the last two or three years has been such that one may 
anticipate a rise in silver as fully as probable as a fall. There 
is practically no increase of output ; there is a large increase in 
demand ; there is a large increase in the output of gold. There 
are certain to be fluctations. 

(b). Result of rise in price of silver, — If the price of silver does 
not fall, the Government must ultimately fix the gold value of 
its silver coins at considerably above their bullion value, say 
fifteen per cent, at least. If it should fix the rate at say only 
five per cent, above, any slight rise in the market value of silver 
would be sufficient to lead to the melting or exportation of the 
silver coins. A slight fall would again lead to their coinage, and 
so on, making the system very unstable. We must not forget 
that in 1903, which was by no means a bad year, the average 
monthly rate of exchange in Shanghai varied as much as 20 per 

China might and should make arrangements so that a per- 
manent rise of any extent in the value of silver bullion, which 
should lead to the melting of the silver coins, would bring about 
the introduction of gold coins ; but, on the other hand, it is 
doubtless better, considering business conditions in China, that 
silver coins be the chief medium of exchange rather than gold, 
although the value should be fixed in gold. A large bulk of 
the business of China is on so small a scale that gold coins, 
which would not be convenient in sizes worth less than five 
dollars, — are not adapted to the needs of the people. On this 
account, Mexico for its own use, the United States for the 
Philippines, England for India and the Straits Settlements, and 
France for French Indo-China, are providing systems with silver 
coins to which they have given or expect to give a gold value, 
rather than real gold systems with gold in circulation. 

The country needs small change, at any rate, even though it 
should have gold coins. The Government, therefore, if it 
takes any risk of having its silver dollars melted down, should 
keep the half dollars, twenty cent pieces and ten cent pieces 
more nearly free from that danger by making them eight-tenths 
fine while the dollar pieces are nine-tenths fine. 

(c. ) Result of raising value of coins after circulation established, 
— If the Government fixes the gold value at say fifteen per cent, 
above the bullion value after the silver coins are once in general 
circulation, there must be a great disturbance of business. The 
only way (short of an artificial scarcity which will seriously injure 


business and which it would be extremely difficult to enforce in 
China) to give the coins that higher gold value is for the Govern- 
ment, after they are in circulation and after it has been receiving 
them at a certain fixed rate, to say that it will receive them at a 
higher rate, and for it to be prepared to sell gold exchange at this 
higher rate. For example, if to-day a silver dollar is worth 48 
cents gold (American), the Government must say that it will 
receive it for, say, the next two months at 50 cents gold ; for the 
two months thereafter at 52 cents, and so on, until it has reached 
the required value. If, now, it should increase the rate at all 
rapidly, the result would be that the banks and wealthy people 
would hoard great sums of money in order to secure these 
higher rates. There would be a great scarcity of coins and busi- 
ness would be seriously hampered. Wealthy people who could 
thus hoard would make large profits at the expense of prosperity 
in trade. 

If the Government, to prevent this speculation, should raise 
the rate gradually, at say not over five per cent, a year, bringing 
it up slowly month by month, it would extend the period of 
unsettled business, of changing and gradually lowering prices, 
etc., over several years, which might well produce a serious 
commercial crisis. 

A failure on the part of the Chinese Government to begin on 
the gold system now means, therefore, that it is taking, first, an 
absolutely certain loss of many millions of dollars to begin with, 
and second, a very serious danger of a future hampering of 
business for several years, and at any rate it must take a much 
more complicated process, in the future, in reaching a gold sys- 
tem than it need take if it starts now on a fixed gold basis. 



I. Governmental control of coinage. — The Government 
must absolutely control the coinage and must limit the quantity 
of coins to the actual needs of business. 

It is impossible to keep the value of silver coins above their 
bullion value unless the Government itself keeps rigid control of 


the mints. Private individuals must neither be allowed to coin 
by themselves, nor must they be allowed to determine in any way 
the quantity which the Government shall coin, or to determine 
individually the amount of money in use. In consequence, be- 
sides the Government control of the mints, it is desirable, and 
will ultimately be necessary, that the Government be able to stop 
the importation of foreign coins and bullion, except on Govern- 
ment account ; or that, by other measures such as taxation, it 
make it more disadvantageous to use them than to use the new 
Government coins. 

This limitation and control is absolutely necessary for the fol- 
lowing reasons : 

(a) Value depends upon quantity, — The value of coins, as well 
as of goods of all kinds, depends, to a considerable extent, upon the 
quantity of them which are available for use in proportion to the 
demand for them, just as flour or cloth becomes more expensive 
when the quantity is scarce and decreases in value when there is 
a surplus on hand. So the coins, by being fewer in number than 
the merchants might readily make use of, will acquire an added 
value, while, if the merchants were allowed to coin them freely, 
there might easily come to be an over-supply so that their value 
would fall to the value of the silver bullion which they contained. 

In establishing a fixed gold value for the silver coins in India, 
the government depended for some years upon scarcity alone. 
Before 1893 the mints had been open to the free coinage of silver. 
On the 26th of June of that year the mints were closed, and for 
some years no more were coined. At first the value of the coins 
declined there being a large supply in circulation ; but after a 
time, inasmuch as the quantity was limited and no further coins 
were supplied, there came a strong demand for more to supply the 
growing needs of business. Then the value of those in circulation 
began gradually to increase until it reached the price which had 
been fixed by the Government — one shilling and four pence to 
the rupee. When this point was reached and there came a fur- 
ther demand from the merchants, they were ready to pay gold to 
the Government in order to have the Government, for their con- 
venience, coin more rupees at that price, one shilling and four 
pence. It must not be forgotten, however, that the scarcity 
hampered business for a time by raising the rate of interest. 
In a similar way it would be wise for China to declare that 
she would furnish her new silver coins to any amount on the 
demand of merchants, provided they would pay a correspond- 


ing amount of gold into the treasury at the fixed value deter- 
mined. On no other condition, however, should the merchants 
be permitted to demand of the Government an increase in the 
number of silver and copper coins. 

The merchants should be permitted to have gold coins furnished 
them at any time either with or without payment of a reasonable 
mintage charge, as seems best when the system is established, in 
exchange for gold bullion which they themselves pay in. 

(b) Value depeyids upon confidence. — In order to main- 
tain the value of the new coins, it is also necessary that the 
Government secure and keep the confidence of the public in 
connection with its management of the new system. This can 
be done best by maintaining absolute faith as regards the quality 
of the coins, by the employment of the ablest experts of the 
highest reputation, and by publicity in connection with the 

Heretofore the mints have, at times, used a larger amount of 
alloy than was provided in the law and there has been no proper 
check over the assays. In consequence the public has lost con- 
fidence in the coins of some of the mints. This must never be 
permitted to happen in connection with the new coins. Each 
melting for coinage must be carefully assayed, and under no 
circumstances should any coins be minted that are not of the 
right quality. In order to secure the confidence of the public, 
coins taken at random from the different mints from time to time 
should be tested by assayers not connected with the mints and 
their reports published. It would be well also, for a time, to 
have coins selected at random by persons not connected with 
the Government or with the mint management and sent to 
foreign mints to be assayed and reported on. The confidence 
of the public, both Chinese and foreign, must be secured and 

Publicity regarding the quantities coined and put into circula- 
tion will likewise tend to give confidence in the wisdom of the 
Government management, and such publicity should be encour- 

The confidence of the public, in the first place, is necessary in 
order to maintain the value of the silver coins ; and, in the 
second place, this confidence would be profitable to the Govern- 
ment inasmuch as, when the people trust the Government, the 
gold reserve, which it will need to carry, may be much smaller 
than will be the case if they distrust the Government. 


2. Universal acceptance of coins by Government. — The 

Government must receive its new coins at all times without hesi- 
tation anywhere in the empire in the payment of any obligations 
due it. 

(a) The acceptance of the coins without question by all Gov- 
ernment officials will give the public confidence in the good faith 
of the Government. 

(b) This acceptance by the Government makes also a demand 
for 'the new coins which will tend to keep up their value. While 
the supply of coins is still limited to an amount less than the 
ordinary demands of business require, this Government demand, 
of itself, might possibly be sufficient to maintain the value at 
the gold rate. 

In some countries the annual revenue receipts of the govern- 
ment amount probably to 25 per cent, or more of all the money 
in circulation. Even though the annual revenue of China 
should be considerably less than that, the government demand 
would still be very great. 

(^c) It would be well, in the first place, probably, not to com- 
pel the officials, even in the provinces where the coins are in- 
troduced, to pay to the Board of Revenue more than, say, one- 
quarter and afterwards one-half of their revenue in the new 
coins, the amounts in every case being adapted to local conditions 
and to the local supply of the new coins ; but finally, of course, 
they and all tax payers should be compelled to pay all of their 
money taxes in the new coins. There should be, of course no 
interference in this connection with the payment of certain 
taxes in kind. From the beginning, however, all of the of- 
ficials should be compelled to receive from the people at their 
full gold value all of the new coins offered to pay obligations due 
to the Government. Otherwise confidence in the Government 
would be lost and its credit would be seriously injured. 

If the introduction of the new coins is made locally, province 
by province, it might very likely be possible almost from the 
beginning to compel the people in the localities where they are 
introduced to pay all of their money taxes in the new coins. Of 
course if a tax payer does not have enough of the new coins in 
hand to pay his taxes, the Government will provide means 
through exchange shops with fixed rates to supply his needs, as Will 
be explained in connection with administrative organization. 

3. Make coins legal tender. — In due time the coins must 
by law be made legal tender (the legal money in which private 


debtors may pay their debts). A law of this kind is usual in all 
countries where a developed monetary system exists. It tends, 
of course, to add to the demand for the new coins and thus to 
keep up their value. 

Such a law should not apply to debts made before the new 
coins are put into circulation. The people should also be per- 
mitted to make specific contracts payable in anything they like, 
but all contracts made payable simply in the money of the countr}- 
such as dollars or taels, the debtor should be permitted to pay in 
these new coins. If the creditor objects, the debtor should still 
have the privilege of paying the new coins into the court for 
the creditor and of having the debt discharged. This law should 
not be passed at first, but after the people have become accus- 
tomed to the new coins and know their real value. 

4. Governmental sale of gold exchange. — The Govern- 
ment should be ready at all times after the coins are put into 
circulation to sell in exchange for these coins at their gold value, 
on demand, in amounts of not less than $5,000, orders (bills of ex- 
change) payable in gold in London, New York, or Yokohama, 
at rates slightly more advantageous than the usual banking rates. 
If, for example, the usual average charge of the banks through- 
out the year is, exclusive of fluctuations in the value of silver 
bullion, say, three-quarters or seven-eighths of one per cent, 
the Government might offer to sell at, say, one per cent, or 
one and one-eighth per cent. 

(a) Gold needed for payment of foreigji debts only. — Inasmuch 
as business conditions in China (the low rates of wages, the low 
scale of prices, the great number of very small transactions, etc.) 
do not require the use of gold in ordinary trade, there is no 
reason why the Government should offer to redeem the new coins 
in China itself in gold. 

For the payment of obligations to creditors in foreign 
countries, however, gold is needed ; and in no other way can the 
Government so easily secure the confidence of the great mer- 
chants and the foreign bankers as by supplying gold at a reason- 
able charge for the settlement of these foreign debts. 

For the last thirty years Holland has found it possible to 
maintain for her silver coins a fixed value in gold without 
redeeming those coins in gold for use within the country. She 
has stood ready, however, to furnish gold at any time for the 
payment of debts abroad. 

India, for a considerable time, maintained the value of her 


silver coins by scarcity alone. This, however, was always at a 
considerable risk that the coins might temporarily at any time, 
owing to a slackening demand, fall somewhat below their face 
value, and of late, since she has a large gold reserve, India has 
also been ready to furnish gold for the payment of foreign 

In the Philippines the Government relies chiefly upon this 
furnishing of gold by means of bills of exchange for the pay- 
ment of foreign obligations to maintain the value of its silver 
coins, although, inasmuch as it had a considerable quantity of 
gold and United States currency, which is at a par with gold, 
on hand in Manila, it offered temporarily to exchange this 
United States money free of charge for the new currency, and to 
exchange gold for the new currency at a charge equivalent to 
the cost of importation. 

Instead of furnishing gold itself for the payment of foreign 
obligations, it will be equally useful to the people and much 
cheaper for the Chinese Government to sell bills of exchange, as 

(b) Ba7ikers will use coins if they can buy exchange. — In order 
to secure public confidence in the new monetary system, the 
bankers, especially the foreign bankers, and the great merchants 
must be willing to receive the new coins at their gold value. If 
the bankers and the merchants can always be sure of buying 
bills of exchange at a fair charge in exchange for the new coins, 
they will always be ready to receive and make use of them in 
their general business. There would never be any possibility of 
their falling in value more than enough to cover the difference 
between the charge for a bill of exchange which the bank would 
make and the charge which the Government would make, say 
one- half of one per cent. This amount is so slight that it would 
never be felt at all in local transactions, and, as a matter of fact, 
when the confidence of the public was secured, the difference 
would never be made by any of the banks. Other uses of the 
coins would be more than sufficient to cover any slight difference. 

(c) Government rates for exchange, — The Government should 
probably charge rates somewhat above those charged by the 
banks. In the first place the Government will probably not 
wish to compete with the banks in their ordinary business. In 
consequence, it places its rates somewhat higher than the banks, 
in order that the banks may ordinarily sell the usual bills of 
exchange. The Government will sell them only for the purpose 
of maintaining the value of the silver coins when there comes 


an unusually strong demand for gold, so that without action on 
the part of the Government the value of its silver coins might fall. 

Should the Government establish a national bank, it would be 
possible to arrange, of course, for it to sell bills of exchange 
against the Government's gold reserve at the usual banking 
rates, thus competing with the other banks. It would probably, 
however, be better for the Government to have its rate fixed in 
the law, and for the national bank to use only its own funds and 
not the Government funds in competition with other banks. 

(d) Profits from Exchange. — This business of selling bills of 
exchange, under the circumstances indicated, will also yield to 
the Government a small profit, which should be placed in the 
gold reserve. 

5. Coins furnished in exchange for gold at home or 
abroad. — The measure recommended in section 4 will prevent 
the depreciation of the silver coins. In order to prevent an in- 
crease of the value of the silver coins above their gold value fixed 
in the law, the Government should agree always to furnish these 
silver and copper coins to any amount at their face value in ex- 
change for gold paid in to the Government. 

This gold might be paid in either to the treasury in China or 
to its agencies or to the branches or agents of its national bank 
abroad. In the latter case the gold paid in abroad would be used to 
purchase orders (bills of exchange) payable in China in the new 
coins at the treasury or at the national bank. When these drafts 
on the home Government are purchased abroad, there should also 
be a charge made, as in the case of gold bills of exchange sold in 
China for payment abroad, although the rate of exchange may 
not be the same. This would likewise bring a small profit to the 
Government, and, what is of greater importance, as will appear 
later, will serve to prevent the exhaustion of the gold reserve. 

VI. A. 


[The following sums up in concrete form several of the points just made 

in VI.] 

A silver dollar which weighs seventy-two hundredths of a tael 
is worth in China at this date in American gold about forty-eight 


cents. If that same dollar or an equal weight of silver could be 
^iven by action of the Government a value of fifty-five cents 
American gold, it would be worth about eighty-two hundredths 
of a tael. The Government cannot, by mere decree, make 
seventy-two hundredths of a tael worth eighty-two hundredths 
of a tael, but it can take other measures so that all merchants 
will readily accept it at that value. Exactly that kind of result 
is secured by all the civilized countries except China. 

The following shows the way : 

If the Chinese Government takes seventy-two hundredths of 
a tael of silver bullion, coins it, and calls the coin the * * Imperial 
Coinage Dollar," it will be different in looks from any dollar 
now in circulation. Let it pay this new coin to an official for 
■eighty- two tael cents ; that is, if it owes him 8.20 taels, let the 
Government pay him ten of the new dollars instea4 of $11.38 of 
the present dollars as the equivalent of 8.20 taels. The official 
will readily take the new dollars at the rate of eighty-two tael 
cents under the following conditions : 

I. — The Government agrees always to take the new dollar 
anywhere in the Empire, — Peking, Shanghai, in Szechuan, 
Honan, or elsewhere, instead of eighty-two tael cents due in 
taxes or contributions or in any other debt due the Government. 
If the official can pay it to the Government for eighty-two tael 
cents and the Government will surely receive it at that rate, he 
w^ill not object to taking it. 

2. The Government should pass a decree in due time, after the 
people understand the plans of the Government, saying that any 
one who has a debt to pay to any other person may pay it in the 
new dollars at the rate of one dollar for eighty-two tael cents. 
If the people know that the Government will always back them 
in paying their debts with the dollar at eighty-two tael cents, 
they will not object to taking it at that rate. 

3. If the Government says, further, that it will take these 
new dollars and give in exchange for them an order to pay in 
London or New York or Yokohama eighty- two tael cents worth 
of gold for each new dollar paid in to its bank, all the foreign 
banks will receive them at that value, for they are buying 
orders on those places every day. If the foreign banks take 
them at that rate, all native banks and merchants will take them 
at the same rate, for they can be sure of paying them out at 
that. If the merchants take them at eighty- two tael cents, all 
the people will do so, for they will know that they may pay 
them out at the same rate. 


4- The Government, too, having full control of the mints will 
not coin more of these coins than the needs of business demand, 
so that the people will always be using all that are in circulation, 
and this also will keep up the value. 

By following these methods the Government could without 
cost to itself gain a profit of ten tael cents on each new dollar 
coined. It would be practically as easy by the same methods to 
make a profit of twelve or fifteen cents, and it would probably 
be best to make the gain about twenty per cent. It should be 
noted that this profit can be made on each piece only once, and 
that is when it is first coined and put into circulation. After 
that the dollar must be taken in by the Government at the same 
value at which it is paid out, so that there is no profit. 

As forty-eight cents gold equals about seventy-two tael cents 
and fifty-five cents gold equals about eighty-two tael cents, it is 
shown above how a forty-eight cent dollar can be made to pass 
for fifty-five cents. 

It is important to note that, if the new dollars are introduced 
into circulation in the way indicated above, very little gold will 
be required at first- and the gold reserve can be built up very 
gradually as the new coins go into circulation. If at first there 
should be distrust on the part of the people, so that they would 
wish to bring the coins paid out to them back to the Government 
in large quantities to buy gold with, it would be well to have on 
hand for the first few months a very large proportion of the 
coins issued. For example, for the first million dollars issued it 
might be well to let the people know that the Government had 
$750,000 gold in reserve ; for the second million issued, say, 
$500,000, that is $1,250,000 for the two millions issued. This 
large reserve at first is to guard against any possibility of panic. 
The actual demands probably would be trifling from the first, 
and after two or three years the reserve could probably safely be 
cut to twenty-five per cent, or even considerably less, provided 
the Government had made arrangements to borrow promptly on 
short notice. 

If the Government pays out the new coins for salaries and 
supplies, deposits them in the banks, gives fair rates in the new 
coins for silver sycee and cash purchased, receives them every- 
where for their full gold value in taxes, the people will very soon 
gain confidence and all persons having money to receive either 
for goods or for services will soon prefer to take the new dollar 


as the better dollar and the one steadier in value rather than the 
fluctuating Peiyang dollar or the inconvenient tael which has to 
be weighed. 


1. A gold reserve necessary. — As has been stated before, 
in order to secure public confidence and to insure from the be- 
ginning the maintenance of the value of the silver coins in gold, 
by methods which we have already discussed, especially by 
selling bills of exchange on a gold fund held mostly abroad, it is 
necessary to have a sufficient gold reserve. 

It should be kept in mind, however, that the quantity of the 
gold reserve required on the system proposed would be very 
much less than if the redemption of the coins in gold on demand 
were made in the country itself. While, beyond question, when 
the system is being introduced there would be a certain specula- 
tive demand for bills of exchange from the interior on the part 
of bankers who could forward their new silver coins to Shanghai, 
Tientsin, and other places where the banks could use them in 
the purchase of gold exchange, this speculative demand would 
probably not last very long. It would depend upon the fact that 
at first a good many of the more ignorant people might be 
willing to sell the new coins, which would seem to them of light 
weight, at rates something below their face value. This danger 
could be largely obviated by having the Government give full 
information as to its means of conducting the business, and by 
the Government itself always receiving them promptly at their 
full gold value for money taxes of all kinds. This purely spec- 
ulative demand on the gold reserve would of course stop as soon 
as the common people knew experimentally that the Govern- 
ment was maintaining the value of the silver coins. 

2. Amount of reserve. — The amount of the total reserve re- 
quired is extremely difficult to determine on account of the de- 
ficiency of statistics in China. In actual practice it must be deter- 
mined more or less experimentally, depending upon the demand 
for coins. It will be necessary, on account of the lack of accu- 
rate information, to make ample provision so as to cover all risks, 
and to see to it that there is enough at each stage of progress. 


According to estimates made by the best experts in America 
and Europe, this reserve should be, for a considerable time at 
least, from twenty-five to thirty per cent, of the value of the 
new silver coins in circulation. 

At the beginning while the change from the old system to the 
new is going on, it will be necessary to have this gold reserve 
considerably larger than twenty-five or thirty per cent, of the 
coins at that time in circulation, inasmuch as there is likely to be 
a lack of confidence at first which may create a run on the reserve. 
Besides this fact, there will also be other coins and bullion in 
circulation for a considerable time. If there should be a slack- 
ening of business or a very strong demand for gold bills of ex- 
change, the withdrawal of, say, even fifty per cent, of the new 
coins in circulation might not contract the entire currency so 
much as would later, when the system is completely established, 
the withdrawal of, say, ten per cent. After the system is 
thoroughly established, it is probable that a reserve equal to ten 
or fifteen per cent, of the circulation will be sufficient for actual 
use, although twenty-five or thirty per cent, should always be 
available on short notice. 

In consequence of the fact that the reserve fund may be 
put to only special uses, i,e,, to the redemption of the new 
silver in bills of exchange, etc., it will doubtless be possi- 
ble to keep part of it in good foreign bonds on which cash 
could be promptly realized. Again, so far as a part is con- 
cerned, it may be sufficient possibly, instead of keeping cash or 
bonds on hand, for arrangements to be made by the Chinese 
Government for a mere right to draw bills of exchange up to 
a certain amount on say two days' notice, the regular rates of 
interest to be paid only on the amounts drawn. This privilege 
could doubtless be obtained at a very small charge if the manage- 
ment had the confidence of the great banking houses. 

According to the estimates of the Director of the Mint of the 
United States, the stock of silver in China at the present time is 
probably in value $750,000,000 Mexican, in round numbers, 
say 482,000,000 taels, or say $337,400,000 American gold. If 
we assume a population for China of 400,000,000 (An outside 
figure. The Director estimates 330,100,000.), this would give 
a per capita circulation of 1.205 taels, or substantially 84.35 
cents gold. If the new dollar were issued at, in round numbers, 
two shillings, one yen, or fifty cents gold, or a little more, it 
would doubtless be sufficient for the time being to allow two 


of the new coins /^r capita, or 800,000,000 for the entire country 
when the system is completed. In order, however, to be sure 
to cover all possible expense in our first estimate, we take a 
figure more nearly like that of India and assume a profitable cir- 
culation of some eight shillings, or two dollars American gold, 
or say four of the new 'silver coins /<?r capita, making 1,600,000,- 

At the present time, according to the same authority, the per 
capita circulation of China and of several countries which may 
be compared with it is, in gold, as follows : 


China $1.02* 

Turkey 3.75 

Japan 3. 24 

Cuba 2.19 

Bulgaria 1.32 

India 2.07 

Egypt 3.71 

Of course countries with more highly developed business have a 
higher ratio. For example : 

The Straits Settlements % 8.03 

Great Britain 18 31 

Germany 2048 

United States 29.79 

France 3922 

It is evident that four new dollars per capita would be a suffi- 
cient outside amount to take into consideration at the beginning of 
the new system. It would take several years at any rate to have 
the system established throughout the country, and experience 
would eventually show the amount required. While the condi- 
tons in China resemble those in India more than in any other 
prominent country mentioned, the probability is that conditions 
are even less developed, so far as the use of money is concerned, 

*The figures are $2.27 Mexican, which would amount to about $1.02 
American, according to the price of silver when this is written. No other 
country in the list has so low an estimate. One of the best informed 
Chinese bankers estimates the present silver circulation at 100,000,000 taels, 
of which ten per cent, is paper and the rest bullion or dollar coins. He 
estimates the copper circulation at 50,000,000 taels, of which fifty per cent, 
is paper. He thinks the country needs more money, but gives that as the 
present amount. That estimate allows only 37.5 tael cents per capita, or 
5c cents at a population of 300,000,000, the least assumed. Unless this 
estimate is ridiculously wrong, an allowance of two new dollars per capita 
is ample for the present. 



in many parts of the interior of China than in India where a sys- 
tem of coins has been in use many years. It should be noted also 
that the per capita circulation in India, as given in the table, 
includes eleven cents per capita for paper money uncovered. 

It would be advisable, of course, for China to introduce the 
system first in the treaty ports or in some of the most populous 
provinces, and then gradually to extend the system throughout 
the country. The population in the treaty ports probably does 
not exceed 8,000,000, while the population of the four provinces 
which contain Shanghai, Canton, Tientsin, and Hankow is about 
100,000,000. If we assume that China, within the first five 
years after she began the coinage, could supply 400,000,000 of 
the new coins, that would cover practically all parts of the 
country which have any direct dealings with foreign countries 
or which can be considered commercial to any noteworthy extent. 
A system that is made thoroughly successful in these sections of 
the country and with this class of the population for a series of 
years will, without especial difficulty, make its way through the 
rest of the country. An actual reserve, therefore, of say thirty- 
three and a third per cent, of this sum of 400,000,000 of the new 
coins, with the privilege of increasing it to 50 per cent, of or even 
to double the original amount in case of need, would certainly 
be ample provision to make for the introduction of the system. 
It would not be necessary, of course, for the entire final reserve 
to be raised within the first four or five years after the system is 
started. If the amount mentioned above were sufficient to 
carry it through the first five or six years with safety, experi- 
ence would show how to take care of the system from that time 
on : but according to all reasonable calculations, if the price of 
silver were to remain where it is now or not to increase con- 
siderably, the profits from the coinage alone would probably 
prove ample thereafter to continue the reserve at a sufficient figure 
until the completion of the system. 

The figures given above are the highest that the writer has 
ever heard estimated, and are given as outside figures which 
would be safe under the most adverse circumstances. On the 
basis of most estimates, and those largely of Europeans long 
resident in China as bankers and merchants, one half of the sums 
mentioned would probably suffice, and those are the figures 
recommended as best to assume. It would doubtless do to 
begin the system on one-half the estimates given all round, pro- 
vided arrangements were made to increase in case of necessity to 


the higher figures, and provided also that the management were 
watchful and skillful and had the confidence of the public, native 
and foreign. The figures are tabtdated by years of work in the 
next chapter VIII. 

3. The uses of the reserve. — This has been explained 
sufficiently for present purposes in earlier discussions. 

4. The means of obtaining a reserve. — (a) Profits on 
coinage, — The profits of the coinage of the silver, nickel and 
copper coins, if the prices of silver and copper do not increase 
materially, ought to amount to as much as 20 per cent. The ex- 
periences of the Philippines and of Japan seem to justify this esti- 
mate as reasonably conservative. Of course all would depend 
upon the value which the government determines to give to the 
coins, and it can, within reasonable limits, fix its profits. Ac- 
cording to the best experts, it is desirable that the face value of 
the silver coins be at least fifteen per cent, above the usual bullion 
value, in order to prevent the danger of the melting down of the 
coins if there should be an increase in the price of silver bullion, 
which would make the coins more valuable as bullion than as coins. 
On the other hand, it is not desirable that the profits be too high 
on account of the danger of counterfeiting. It is probable that 
so far as the unit coin (the dollar) is concerned, a reasonably safe 
profit of about fifteen per cent, is about right. From the present 
outlook regarding the future price of silver, the margin had 
better be somewhat above fifteen per cent, rather than below it. 
On the subsidiary silver coins, on account of the less danger of 
counterfeiting and also because the principle of scarcity can be 
applied somewhat more rigidly to maintain their value, a some- 
what higher profit may be made. •If the dollar coins are nine- 
tenths fine, it is entirely possible that the subsidiary silver coins 
might be made eight- tenths fine. The disadvantage of the larger 
amount of alloy in the subsidiary coins is that people might at 
first hesitate somewhat about receiving them ; but that danger 
would soon be overcome if the government adopted the right 
measures of interchanging them for dollar coins on demand. 
The second danger of greater importance is that of counter- 

On the nickel and copper coins, of course, a much greater 
profit can readily be realized. On such coins a profit from fifty 
to one hundred per cent, is not unusual. As in China the quan- 
tity of copper and subsidiary silver coins would be unusually 
large, a profit of twenty per cent, on the entire coinage for five 


years is probably safe to assume. Mr. Sakatani, Vice- Minister 
of Finance of Japan, assumes a profit of thirty per cent. 

It should be kept in mind also that if an increase in the value 
of silver bullion lessened materially the profit of the Government, 
it would also lessen the Government's risk at the same time. A 
decided rise in silver in the London market would rather have a 
tendency, other things equal, to lessen the demand on the gold 
reserve, both by encouraging the payment of foreign obligations 
through the export of silver and by giving confidence in the 
Government as the risk from depreciation of its coins lessened. 
Moreover, if, owing to a threatened exhaustion of its gold 
reserve, it were eventually forced to sell some of its silver coins 
to meet a temporary emergency, it would realize a higher price 
for them. In no event would it lose more than the cost of 
coinage and freight, unless the bullion value of silver fell between 
the time of its purchase of bullion and sale of coin. 

The profit on coinage should all be devoted, for a considerable 
time at least, to the purchase of gold for the gold reserve. If it 
should be necessary to get any considerable extra sum in hand at 
any one time, it would be possible to use this reserve and the 
silver on hand as a basis for a temporary loan of a few months, 
provided the government authorities had the full confidence of 
business men. It probably would not be wise, however, to count 
on this as a basis for any but a temporary loan. 

(b) Contributions, — The government has already made pro- 
vision for the accumulation of a gold reserve by permitting con- 
tributions from certain classes of oflScials to be paid part in gold 
or in silver at the ratio of 32 to i. It might be well to encour- 
age as far as possible the income from this source. Possibly 
other similar sources can be discovered which will add consider- 
able sums to the gold reserve. 

(c) Loan, — The Chinese Government might very profitably, 
considering the importance of the change of the monetary system 
and the profits of coinage, make a loan, of which a large part of 
the proceeds should be placed in the gold reserve. The direct 
gain from profits of coinage alone ought to make this loan 
very profitable, even if the extra capital needed had to be 
borrowed. In private life to borrow at six or seven per cent, 
and to make twenty per cent, is considered very good business. 
China ought to be able to make better rates than those. 

If the foregoing estimates regarding the profits from coinage 
are not excessive, it will be noticed that these profits will 


amount regularly, at the rate of coinage suggested as sufficient 
for beginning, to 8,000,000 dollars a year for a period of 20 years 
if the smaller estimates are taken ; to double that if the larger 
are assumed. If the rate of coinage were increased, the income 
would be proportionately increased, although the time of its 
duration might be correspondingly lessened. 

However, even if this profit of $8,000,000 or $16,000,000 
a year is made for the government so that it becomes government 
property, it could probably not be used for anything else than a 
gold reserve ; that is to say it could not become one of the 
regular revenues of the government to be applied to other 
purposes, at any rate for a considerable time. Later part of it 
might possibly be used in such a way. On the other hand, 
unless the statements made heretofore regarding the benefits to 
China of a monetary system established on this basis are grossly 
mistaken, the indirect benefits to China from the system would 
amount to much more than the cash profits from the coinage 
thus placed in the gold reserve. Before the system were en- 
tirely completed it is probable that as a result of its establish- 
ment the added revenue to the country from other sources 
would be enough to much more than pay the expenses of any 
loan required. Every increase in imports or exports increases 
both customs and likin receipts, while investments and confidence 
lead to increased revenue from other sources. 

In estimating the expenses of a loan, also, it should be kept 
in mind that, so far as the loan is required for the gold reserve, 
a considerable part of it could be kept as a current balance in 
the banks either at home or abroad, and thus be made to realize 
a considerable return in interest, doubtless two per cent, and in 
some cases more. The Government of the Philippine Islands 
has realized three and a half per cent. If experience showed 
that the demand on the gold reserve were comparatively small, a 
considerable portion might also be kept invested in securities, 
Chinese or foreign, which would pay part of the expenses of the 
loan, probably three to four per cent. At least half of the re- 
serve, on the average, might thus draw interest ; probably a 
much larger proportion than one- half might secure some income. 

As a basis for a loan, if any is needed, the following sources 
are suggested : 

(i) Increased returns from customs. — The annual increase of 
the returns from the imperial customs. The annual income 
at the time of the establishment of the indemnity, it is under- 


stood, was practically all required for the payment of that in- 
demnity. The trade of China, however, is rapidly increas- 
ing, and there is, in consequence, a large annual increase in 
the returns from the customs. If the Government can secure 
its support on the basis of the income of three years ago and 
assign this increase in the customs to the establishment of a 
monetary system, this might be used as the basis of a con- 
siderable loan. 

(2) Opium y spirits, etc. — From investigations made through- 
out the provinces, it is evident that the Chinese Government is 
not receiving, either through the central government or through 
the provincial governments, nearly so large an income from 
opium, spirits, tobacco, and other similar products as is usual in 
other civilized countries. In the United States, for example, 
the central government alone derives from the manufacture and 
first sale of such products, mostly spirits and tobacco, ordinarily 
nearly half of the entire national revenue. Besides this, the 
municipalities derive a large additional income from licenses 
issued to shops where these products are sold. In India in 1902 
the government derived from opium alone a revenue of 72,78i,ocx) 
rupees, or in round numbers about 36,400,000 taels. From 
salt it received only about 89,000,000 rupees, say 44,500,000 taels. 

It would seem probable that by a proper organization of the 
service and an increase in the tax, the Chinese Government might 
realize from opium a much larger revenue in the near future 
without any tendency toward increasing the quantity of opium 
used. The Government would also derive a very great advant- 
age in securing a much greater control over its production and 
use which would enable it more easily later to adopt whatever 
measures might seem advisable. Probably similar provisions 
might be made, although they would be of less importance, 
with regard to spirits, wines, tobacco, and similar luxuries. 

The succeeding note offers some suggestions regarding an opium 
farm for certain cities. 

(3) Land Tax, — Sir Robert Hart has suggested an increased 
revenue from the land tax, the provisions of which are familiar. 

(4) Mines. — It seems to be the general opinion throughout 
the provinces, particularly among business men and those who 
have looked somewhat carefully into the subject, that a consid- 
erable increase in income might be derived from the development 
of those mines of China, the revenues from which have not 
already been assigned, and that, if it were desired, a loan might 
be made on this security. 


In order to secure such an increase in revenue and to manage 
it to the best advantage, it is necessary that the government have 
a somewhat accurate and detailed knowledge regarding the 
mineral resources of China. This could probably be most readily 
secured if the Government, through the Board of Commerce, 
were to organize a central mining bureau. This bureau should 
undertake at once a careful survey or prospecting of the chief 
mining resources of the Empire under the direction of experts 
who would have the full confidence not merely of the Govern- 
ment itself but also of investors everywhere. In the case of all 
mines which seem important, very careful estimates should be 
made by these experts of the probable income which might be 
received from each mine under proper royalties. When this 
estimate was in hand the Government could judge reasonably 
well regarding the amount of money which could probably be 
borrowed on this basis. Of course no investors, either Chinese 
or foreign, would be willing to make a loan so large that its 
interest and * amortization fund would exhaust the estimated 
royalty. Capitalists might readily be found, however, who 
would be willing to make a loan the average support of which 
might amount to say a half of the royalty. This would, on the 
average, give an ample security. The other half then, in case it 
were actually realized, would go into the general treasury of the 

When the mining bureau once had full knowledge of the 
mines at its disposal, it would be in a position to grant privileges 
on these mines on reasonable terms on the basis of the experts' 
reports. Investors would, of course, send their own experts, at 
first at any rate, to investigate the mines which they were pro- 
posing to develop or on which it was their intention to make a 
loan ; but if the Chinese had employed experts of equal skill, 
every such investigation would serve not only to confirm the 
judgment of the Government experts but likewise to add to the 
credit of the Government itself. When the permit for the work, 
ing of the mines was given, until a sufficient sum had been 
secured for the monetary system, it might well be made on the 
basis of a loan of reasonable size. It is the opinion of a good 
many experts who have thought out the matter somewhat fully 
that from the mineral resources of the country there might be 
realized in this way a considerable sum within a comparatively 
short period, — enough probably to supply the needs of the mone- 
tary system. 


(5) Railroads, — It is probable that there are also some rail- 
road concessions which might be used in the same way under 
the direction of the Board of Commerce. 

(6) (9/^<?r5t?«r^<?^.— Probably the Board of Revenue can sug- 
gest other sources of revenue ; for example, a house tax such 
as has been employed in Canton ; a business tax such as is com- 
mon throughout Europe and in the Philippines ; or others. Of 
course any such taxes should be levied with discretion and with 
care not to interfere with business. There can be little doubt, 
however, not merely that it would be extremely profitable to the 
Chinese Government but also very beneficial to the Chinese 
people, to make the sacrifice of slightly additional taxes or of 
the use of some of the new sources of revenue suggested, 
amounting, say, to from two to five million taels a year, in order 
to establish a new monetary system, which would probably 
bring an annual profit for a good many years of from six million 
taels a year upward, besides the still greater indirect benefits 
already mentioned. 

6. The means of maintaining the reserve. — Most of the 
means of maintaining the reserve at a sufficient amount after it 
has once been established have already been indicated in connec- 
tion with the maintenance of the gold value of the silver and 
copper coins, so that this subject may be treated quite summarily. 
The following methods may be noted : 

(a) Gold paid in. — In case individuals wished to have silver 
and copper coins issued to them individually in addition to those 
which the Government has put into circulation by the ordinary 
channels, the Government should coin and issue such silver and 
copper coins on demand in reasonable quantities for gold 
deposited. Such gold should be placed in the reserve fund. 

This has been the chief source, practically the only source, of 
raising the gold reserve in India. It could doubtless be made 
eventually to become a considerable source of gold revenue for 
China. It is not well to depend upon it too much, as, in order to 
have it work most efficiently, it would be necessary so to 
Hmit the quantity of coins that business might be considerably 
hampered. Moreover, it shotdd be kept in mind that full con- 
fidence in the administration and high credit is needed to make 
this source effective. 

(b) Sale of silver bills on China, — In connection with the 
above is the sale of bills of exchange for gold by the Chinese 
agencies abroad, these bills of exchange to be drawn on the 


treasury in China or on the national bank acting as the agent of 
the treasury, and to be payable in China in the new silver coins. 
It is not necessary that the rates charged by the agents of China 
abroad for bills of exchange payable in the new coins in China 
be the same as those charged by the Chinese Government for 
bills of exchange payable abroad in gold from the gold reserve. 
In fact, if it seemed that there were danger of the exhaustion of 
the gold reserve, the Government might make the rates favor- 
able enough so that it would become an active competitor of the 
foreign banks in selling these bills of exchange. Of course the 
persons in charge of the system would need to exercise very 
careful discretion in determining what those rates may be in 
order, on the one hand, to maintain the system in its integrity, 
and, on the other, not to interfere unduly with private business. 

(c) Buy gold exchange. — In case of very heavy drafts on the 
gold fund, so that there seemed danger of its exhaustion, the 
Chinese Government, either through the national bank or 
through other special agencies, following the example which 
Japan set in more than one instance, might enter the market and 
buy in competition with others in Shanghai, Tientsin, and else- 
where, for silver, foreign bills of exchange payable in gold in 
London, New York, Yokohama, or elsewhere ; the products of 
these bills of exchange when collected in gold to be placed in the 
gold reserve. 

(d) Profits on exchange, — From the sale of bills of exchange 
on the gold reserve held abroad, as well as from the sale of bills 
of exchange on the Chinese treasury payable in the new silver 
coins of the country, small profits would, of course, be realized. 
These would naturally be placed in the gold reserve. While they 
would, in all probability, amount to a considerable sum each 
year, they would naturally form but a small part of the gold re- 
serve as a whole. They are therefore to be looked upon as a 
subordinate means of maintaining the gold reserve. 

(e) Sale of silver on hand, — Another resdurce is also left in 
case of an emergency, a means which was advocated by Mr. 
Lindsay, of the Bank of Bengal, when it was proposed to estab- 
Hsh earlier a gold reserve for India. 

In case very large quantities of the new silver coins are paid 
into the Government treasury in exchange for bills of exchange 
on the gold reserve, these coins are to be held in the treasury 
until there comes a strong demand on the part of business men 
for them to be paid out, a demand which would be manifested 


ordinarily by the deposit of gold either at home or abroad for 
this purpose. It is evident that such deposits of gold would not 
be made as long as gold exchange is demanded. The govern- 
ment would therefore have in its vaults large quantities of silver 
coins. If the gold were not forthcoming elsewhere, it could either 
borrow temporarily on the security of these coins or could finally 
sell them on the market as bullion either for local use or for ship- 
ment abroad. Such a sale would involve a loss to the govern- 
ment of the cost of coinage and possibly also some shipment 
charges. Beyond that, however, there would be no loss suffered, 
provided the price of bullion remained the same, inasmuch as the 
government would itself have bought the bullion originally for 
coining these pieces at market bullion rates. There would be a 
loss of coinage and recpinage, but this would be a very small per 
cent. , possibly two or even four per cent, with freight charges, 
and might well be suffered rather than to take any serious risk of 
the exhaustion of the gold reserve and the depreciation of the 
coins already in circulation. 


In the article on a Gold Reserve, under c (2), it is suggested 
that the Chinese Government does not receive so large an income 
from opium, spirits, etc. , as is usual in other countries or as is 
desirable. In order to secure a sufficient basis for a loan for the 
new monetary system and in order to get this return within a 
year, which would be soon enough for the inauguration of that 
system, it has been suggested that the selling of opium in the 
larger cities like Canton, Shanghai, Hankow, Foochow, etc., 
might be made into an opium farm ; that is, that the monopoly 
of this sale, including the selling through the opium shops where 
opium is consumed, be made a monopoly and be sold to an indi- 
vidual or syndicate who would pay the largest amount for it and 
would conduct it in. accordance with the law. 

The Government would then lay down whatever regulations 
it saw fit for its introduction into the city, and its sale, fixing, if 
it thought best, the quality, prices, restrictions regarding per- 
sons to whom it should be sold, the number of shops where it 
should be sold, with their location, and any other regulations 
that seemed desirable. The money for the farm should be paid 
quarterly in advance, so that the Government could count abso- 
lutely upon the amount of revenue and upon the date when it 



would be received. This system should be applied to enough 
cities to furnish the revenue required for the loan. This law 
would form a good basis for the proper taxing of opium, and 
might later be extended to include a general opium monopoly 
by the state, or it might take whatever other form seemed ad- 
visable. It was suggested that a commission of three men, to 
consist of two Chinese and one foreigner, the foreigner presum- 
ably a man from the imperial customs who knew something re- 
garding the conditions of opium importation, etc. , and who could 
speak Chinese, should be sent at once to Singapore, the Feder- 
ated Malay States, possibly to Java, Sumatra, Manila, and For- 
mosa, to see how the farms are run in those different places, 
where they have them. They should then go to Canton and 
these other Chinese cities, and after informing themselves about 
conditions there, have charge of the selling of the opium farm. 
The farm should presumably be sold for a year at a time, with 
the expectation that if the farmer did his work well he should 
have a certain priority in the succeeding year. 

An opium farm of this type would presumably bring in a cer- 
tain revenue more promptly than almost any other tax that 
could be devised. As soon as the farm was sold it would make 
an absolute basis for a loan, so good that a loan could doubtless 
be floated at a low rate. 

The chief advantages of the system are (i) the prompt and 
certain income ; (2) the ease of enforcing the law, inasmuch as 
the opium farmer, in order to keep his monopoly, would himself 
see to the enforcement of the law against all other persons be- 
sides himself. He himself has so much money invested that it 
would not pay him to take the risks of violating the law under 
penalty of forfeiture of his farm. (3) The ease of changing 
the system for another at almost any time whenever the change 
might seem desirable. 

Of course the dangers of a farming system like this are not 
overlooked. There is danger of evasion of the law, of a poor 
quality of opium, etc. In many respects a government monopoly 
is preferable. On the other hand, considering present conditions 
in China — the difficulty of handling honestly government mo- 
nopoly, the need of immediate and certain returns, etc., — it is 
probable that the opium farm would secure the needed revenue 
more certainly and promptly than the other forms of tax 

^ I 





It is assumed in suggesting these figures, in order to make the 
estimates at the highest possible cost, that the population of 
China is, in round numbers, 400,000,000 ; that the new monetary 
standard coin shall be a dollar about equal to the present Peiyang 
or Canton dollar in size and weight, and that it is given a gold 
value slightly above that of the Japanese yen, enough to insure 
the requisite profit. It is within the power of the Government 
to fix the rate of profit at the beginning. 

There are two bases of estimates, the first assuming that China 
will need eventually, when the system is completed, four of these 
new dollars per capita. This is an outside estimate, larger than 
is usually given, and larger probably than is needed. The second 
assumes a circulation of two of the new dollars per capita, is the 
one more generally given and is the one recommended. It 
is ample for starting the system, though the rate of coinage 
might be increased, if the coins went into circulation readily. 


The circulation for the entire Empire when the system is com- 
pleted will be $1,600,000,000. 

In the four chief provinces of China which are especially con- 
nected with foreign trade — Chili, Kiang-sii, Hupeh, and Kwang- 
tung — and which contain all of the leading commercial cities — 
Tientsin, Shanghai, Nanking, Hankow, and Canton — there is a 
population, in round numbers, of presumably some 100,000,000. 

If the new monetary system is once well established in these 
provinces and the fixed value of the coins maintained in terms of 
gold, there will be no difiiculty whatever in extending it on that 
basis through the rest of China. In consequence the estimates 
here given are on the basis of supphdng these four provinces 
completely with the new coins. In actual practice it is probable 
that a good many of the more remote districts of these provinces 
might not be well supplied at that time, while some of the cities 
of the other provinces such as Shantung and Fukien would be 
supplied ; but the quantity mentioned would be ample work for 
the first five years. The figures given are high enough in every 
case so that they are believed to be entirely safe. The following 


table in millions of dollars gives, for each of the first five years 
the amount to be coined, the profit on the coinage at twenty per 
cent., the amount in circulation, the per centage of the circula- 
tion to be held as a gold reserve, the amount of that reserve, and 
the amount to be supplied to the gold reserve fund by loan or 
otherwise outside of the coinage profit. 



A mount 


A mount 
in circulation 

Percentage of 


in reserve 



A mount to he 
from loan 
or tax. 


$ 80 


$ 80 


% 60 




































It will be noted that the larger part of the loan or special tax 
is called for during the first year. There are two reasons for 
this. In the first place, the special runs on the new system are 
likely to occur during the first year rather than later. On that 
account it might be thought advisable, for a time at least, to be 
ready to supply gold if necessary to a certain extent in ex- 
change for the new silver coins within the country itself at a 
charge equivalent to the cost of shipment of gold from Europe. 
This should not be adopted as a general policy, and it is ques- 
tionable whether it should be done at all ; but provision for a 
very large reserve to guard against possible runs should be made. 

In the second place, while the bulk of the circulation is still 
in other coins or in bullion, especially before their importation is 
stopped, it is possible that, in order to test the system, a very 
large percentage of the new coins would be presented to buy 
gold exchange with, even at the rather high rates charged for 
bills of exchange. After the system is finally established, the 
withdrawal of the coins from circulation on their presentation to 
buy bills would so contract the currency that the rates charged 
for bills of exchange would certainly fall, i, e. , a fixed amount 
in sterling, say ;^iooo, would cost less in the new dollars ; or a 
fixed amount of the new dollars would buy a larger sterling draft, 
as the dollars became scarcer. But while there remained a large 
circulation of other coins and particularly while importation of 
other coins might continue, it is possible that this might not be 


the case ; hence the necessity during the first year or two of a 
very large reserve which could be used if necessary. It is ab- 
solutely essential to the success of the system that sufficient pro- 
vision be made so that the absolute confidence of the business 
world, both Chinese and foreign, be assured beyond question. 


This estimate is much more reasonable on the whole and is 
ample for a safe starting of the system, though, if experience 
shows that the coins are readily used and the system rapidly wins 
success, provision should be made to increase the rate of coinage 
and the amount coined. The following table in millions of dol- 
lars shows the figures for each of the first five years and the 

In either case it would be desirable to make contracts in the 
cities where the gold reserve is kept for making further tempora- 
ry drafts in case of an emergency ; that is, an option to draw 
to an amount named would be bought. As long as it is likely 
that this privilege would not be needed, it is probable that the 
charge for the mere privilege would be slight In case use should 
be made of it, the Government would, of course, pay the usual 
rate of interest for the length of time it kept the money, say from 
one to four months. It would be easily possible, doubtless, to 
give to an institution from which this option of drawing was ob- 
tained, a warning of a day or two at least. Probably a warning 
of even a month could be given. 

In addition to the monetary circulation itself, it is necessary 
that there be some working capital. It is probable that from the 
present sources of income of the Chinese Government something 
could be furnished ; but in order that the entire expenses may be 
estimated, it is thought best to add a sum for working capital. 
Under the first estimate, in order that the principle of giving 





Percentag^e oj 
Amount circulation 
in circulation, in reserve 



A mount to be 


from loan. 


$ 40 


$ 40 75 






80 50 






120 42>^ 



41 h 



160 36f 


— — 




200 33 i 




, |200 






the highest charges to everything be maintained, this sum may 
be placed at, say, $25,chx),ooo. This would be sufificient to pro- 
vide a liberal amount of bullion for the mints, to incur some 
expense in organizing the mints anew if necessary, and to make 
some provision for the initial establishment of exchanges and 
agencies for the introduction of the new system. It is possi- 
ble that this sum would also pay the provinces, in part at least for 
the mints taken over. This would make, then, to be raised from 
outside sources, i. e., from a loan or special tax $80,000,000. 

Under the second estimate we may place the figure for ex" 
penses ;at, say $13,000,000. Doubtless a smaller sum would 
serve to run the mints, but not to the best advantage, provided 
many other expenses arise, inasmuch as it is desirable always to 
be sure of keeping an ample supply of material on hand. The 
payment for present mints is not included. This would make a 
total from outside sources, a loan or tax, under this estimate, 
of $40,000,000. 

Inasmuch as the present accounts of the Chinese Government 
are kept in Kuping taels, it might be convenient for purposes of 
computation if these sums were put into taels. It is assumed 
that the new dollar will be slightly more valuable than the Jap- 
anese yen. The Kuping tael is somewhat heavier than the 
Shanghai tael. According to late quotations, exchange on 
Yokohama was 80 Shanghai tael cents per yen. We may per- 
haps safely assume for the present purpose that the added value 
of the Kuping tael as compared with the Shanghai tael corres- 
ponds to the added value of the new dollar as compared with the 
yen, and reckon the new dollar as worth .80 of a Kuping tael. 
In that case the amounts to be raised would be, on the different 
estimates, respectively 64,000,000 taels and 32,000,000 taels. 

If an estimate of seven per cent, interest is assumed in order 
to get the annual charge, we shall surely be taking an outside 
limit. It is probable that the loan could be made at considerably 
less than that. At the rate of seven per cent., under the first 
estimate, the annual charge would be 4,480,000 taels ; under the 
second estimate, 2,240,000 taels. If we may judge from the 
practically universal experience with such funds, however, a 
considerable portion of the gold reserve could be kept on deposit 
at call in the great business centers whether in Europe, America, 
or China, so that it would bear interest. It is clearly a con- 
servative estimate to assume that a half of the reserve is draw- 
ing two per cent, interest. It is probable that it would be con- 
siderably more than that. 


The first year we should have a reserve of $6o,ooo,ocx> ; the 
fifth year $135,000,000. It will perhaps be fair to take an 
average of these sums for the average reserve during the first 
five years, $97,500,000, the interest at two per cent, on half of 
which amounts to $975,000. Reducing this to taels at the same 
rate we get 780,000 taels, to be deducted from 4,480,000 taels, 
leaving 3,700,000 taels as the net expenditure. In the second 
table, reckoning in the same way, the annual net revenue at two 
per cent, for the first five years would be 388,000 taels, to be 
deducted from 2,240,000 taels, leaving an average annual ex- 
penditure of 1,852,000 taels. 

If to these sums respectively be added, say, one per cent, of 
the average reserve for the privilege of drawing an added amount 
equal to the reserve for any few days at a time when that might 
be needed, although in all probability it never would be needed, 
this will restore the annual charge to the figures given originally ; 
that is, 4,480,000 taels and 2,240,000 taels. 

When one considers the enormous benefits to China, as they 
have been stated before, which would accrue from these expendi- 
tures, the latter seem very slight indeed. These estimated 
charges themselves per annum would probably, in actual practice, 
suffice to pay off the debt incurred by the time the monetary 
system was made complete, provided the rate of coinage, the 
profits of coinage, and the amount to be coined remained as in- 
dicated in the estimates, and estimating that it will require 
twenty years for the complete establishment of the system. The 
following considerations indicate that result : The gold reserve 
could be made proportionally less before that time ; the interest on 
current balances would increase decidedly ; the reserve has been 
reckoned against the entire circulation, whereas it would not 
need to be kept for redemption of copper coins, etc. It is best, 
however, to make provisions against all possible risks, so that 
the above outside figures are given. It would be desirable to in- 
troduce the system more rapidly than indicated here. In that 
event the cost to the country would be less, since the benefits to 
the country would be correspondingly greater, inasmuch as the 
benefits would take effect sooner. 

If for an expenditure of 4,480,000 taels a year, a cash income 
of 12,800,000 taels can be secured, and for an expenditure of 
2,240,000 taels one of 6,400,000 can be secured, aside from all 
the other vastly greater benefits of established credit, of increased 
trade, of increased revenues, etc., it would seem that the most 


strenuous efforts ought to be made to secure the sum needed 
from year to year in order to keep up these benefits. 

It must not be forgotten that if the system, instead of being 
established with the coins on a fixed parity with gold, is placed 
on the silver parity, the profits of coinage will be reduced by 
three- fourths, at any rate, whereas the cost of minting and other 
incidental expenses of introducing the system would not be 
reduced at all. Moreover, there would be lost a very large pro- 
portion of the advantages that would come from an established 
credit, an increased investment of capital, etc. Beginning on a 
silver basis and afterwards transferring to gold would lose abso- 
lutely at least three- fourths of the profits on all the coinage issued 
before the system was established and would, beyond much of 
any question, postpone the completion of the system to a period 
at least double that which will be required if the system is started 
on the gold basis. It becomes a matter of the gravest import- 
ance, therefore, that the whole plan be thoroughly thought out 
before any positive action is taken. 

If it is rightly managed, the system not merely costs nothing 
in the long run ; it is a source of large actual cash profits from 
the first year. It is a very profitable financial investment. 
If the sovereign power of the state which enables it to make 
these profits could be loaned to a private company, such a 
company would willingly pay the Chinese Government several 
millions of taels a year for the privilege of starting and running 
the system, without any expense to the Chinese Government. 
It would, of course, be inadvisable to give such power to 
a private company ; but the fact shows the opportunity which is 
presented to the Chinese Government by the present conditions. 
All other civilized countries on the gold basis are using this 
source of profit to advantage ; but as the chief profits come from 
the new coinage they make much less than China can make 
which has to coin anew its entire circulation. 

If the Chinese government finds it diflficult for two or three 
years to secure additional revenue to pay the interest on the loan, 
it will probably be practicable to pay the interest for three years 
at least out of the seigniorage, so that the Chinese Government 
would thus establish its monetary system on a gold basis without 
any expense to its revenues for the first three years, provided the 
price of silver remained substantially the same. It is probable 
of course that this period might be extended a year or two ; it is 
possible that it might be shortened a little. From careful discus- 



sion of the subject, however, with business men accustomed to 
floating foreign loans and dealing with financial matters of that 
type, it is practically certain that a loan could be made on the 
security of the gold reserve, with the interest to be paid for three 
years at least out of the profits of the coinage. This would be 
sufficient time for the government to start almost any new system 
of revenue which was necessary in order to meet expenses there- 


1. Conditions of success. 

a. The confidence of the people, Chinese and foreign, 

( 1 ) That they may readily take the new coins at their 

face value. 

(2) That they may subscribe money for a loan or the 

establishment of a national bank. 

(3) That the banks, especially the native banks, may 

accept the coins in connection with foreign ex- 
change and the gold reserve. 

b. Sufficient capital, 

c. Skill in management of the system. 

These three are all needed for the success of the syvStem 
whether the coins be given a fixed value in gold or not, though 
especially needed in the latter case. 

2. How to secure these conditions. 

a. Means of securing confidence, 

(i) Publicity. If everybody knows well what is being 
done and how the system is managed and if the 
work is well done, confidence is assured. This 
will require a careful system of accounting and 
the regular publication of accounts, as is the case 
in most of the advanced countries. 

(2) Absolute good faith and uprightness in the manage- 
ment, and public belief in this good faith. At 
present the public has not always sufficient trust in 
the good faith of the government to give it its full 
confidence. The management must be such as 
to secure that confidence. 


(3) Management in the public interest and public be- 

lief in that. At present there is sometimes, un- 
fortunately, a belief that some of the business of 
the government is managed in the interest of the 
officials. The new system must be managed by 
business methods, and it will be easier to secure 
public confidence if it is managed, as far as is 
practicable, through the banks and other business 

(4) Skill and knowledge in management, and manage- 

ment through such agents that the people will 
trust their skill. It is not sufficient that the men 
have sufficient knowledge unless they are those 
whom the public, on account of their general 
reputation and of their connections, will trust. 

b. Capital. 

In order to secure capital the public confidence must 
first be secured and the plans adopted must meet the 
approval of the leading capitalists. After that the 
methods of raising capital by loans or subscriptions 
have already been sufficiently discussed under the 
question of a gold reserve. 

c. Skill in management of the system. 

Men for the diiferent positions of responsibility must 
be chosen, who from their training and experience will 
be known to have the requisite skill. It will not be 
sufficient to select merely men of promise. The men 
in the most important positions must have been already 

3. The officials needed. 

a. The Monetary Commission or Board of Revenue, 

Either the Monetary Commission or the Board of 
Revenue will presumably have the general supervision 
of the system as a whole, and the officials appointed 
will be subordinate to them. 

Presumably it would be well for some one person in 
this Commission to be designated as an active official 
to give his full time to the work and to represent the 
Commission as a whole. 


b. An Expert {Controller) in general charge of the system. 

He should be held responsible for the general man- 
agement of the system as a whole under the Commis- 
sion, and, generally speaking, of course, his recommen- 
dations should be followed. He should take no impor- 
tant step without the full knowledge of the special 
manager of the Monetary Commission, already men- 
tioned, and matters of chief importance should receive 
the sanction of the full board. 

He should be ex officio a director of the national 
bank, and should have immediate direction of the gold 
reserve, acting through the bank, where practicable, 
and also under the oversight of the Commission. He 
ought not to have any control over the revenues ex- 
cept in the monetary system. 

Presumably he should live at Peking. He should 
nominate to the Board for appointment the other chief 
monetary officials. 

c. Deputy Controller, 

Inasmuch as Shanghai is the most important business 
place in China and inasmuch as questions of exchange, 
as well as other important matters in connection with 
the system might presumably come up there first, it 
would be advisable that, when the system is started at 
Shanghai, there be a Deputy Controller resident there 
who would have the confidence of the Commission, 
and who, agreeing in general policy with the Con- 
troller and the Board, would represent the Controller in 

d. General Accountant, 

The necessity of accurate accounting and publicity 
has already been mentioned. This cannot be secured 
to advantage unless the accounts of the different 
mints and of the different branches of the work be 
kept in accordance with an harmonious system. The 
General Accountant should, therefore, determine the 
methods of accounting throughout the system ; should 
receive in detail from the mints and other branches of 
the work, including the national bank so far as its 
work is connected with the monetary system, uniform 
reports ; and should be held responsible for the regular 


publication of accounts so far as matters are to be 
made public. He should collect statistics for the 
Commission, be the agent to send out notices of rates 
of exchange, etc. 

e. General Superintendent of Mifits, 

Besides the sub-superintendents in charge of each 
one of the mints that is running, there should be a 
General Superintendent in charge of them all. It 
should be his duty to see to the buying of bullion, to 
the general principles on which the mints should be 
managed so as to secure absolute accuracy in the 
minting of the coins, as regards the touch of the coins, 
excellence of workmanship, care of the materials, etc. 
He should also deliver the coins to the national bank, 
the treasury or other agencies of the Monetary Com- 
mission, in accordance with the directions received 
from the Monetary Commission through the Controller. 
He should nominate the sub-superintendents of the 
mints to the Controller for appointment by the Mone- 
tary Commission. Presumably the present local man- 
agers and working force would be retained as far as 

4. The National Bank. 

The National Bank, while doing presumably a large pri- 
vate banking business which would come to the profit of the 
stockholders, would also be an agent of the Government in 
connection with the monetary system and with other gov- 
ernmental work. As*its profits would be in part dependent 
upon the Government and as it would do much Government 
work, it should divide profits with the Government and the 
Government should have a voice in the management, 
(a) Powers, 

(i) Discount or purchase of commercial bills of 

(2) Purchase and sale of gold and silver bullion and 

(3) Loaning money on the security of gold and 
silver coins, bonds, government bills, or other 

(4) Opening and conducting deposit accounts, in- 
cluding safety deposits. 

Private. -< 



Public, i 




(5) Issuing of bank notes convertible on demand 

into the new coins under government law de- 
termining the new coinage. A special law 
should be passed determining the amount and 
character of the coin reserve for the bank 
notes, the regulations regarding their re- 
demption and other ordinary provisions of a 
law regulating bank-note issue ; the right of 
issuing bank notes to be made a monopoly of 
the bank as soon as practicable. 

(6) Act as the chief agent of the Government in ex- 

changing the new coins and notes for the old 
coins and moneys now in circulation under 
regulations made by the Commission. For 
this work, of course, it would establish 
branches and numerous agencies. It would 
advise regarding the quantity and denomina- 
tions of coins to be minted, 

(7) Act as agent for the Government in the adminis- 

tration of the gold reserve fund in connection 
with the Controller under regulations made by 
the Monetary Commission. The gold reserve 
to be held as government property on deposit 
with the Bank and to be administered by the 
Bank, not as its own funds, but under general 
regulations, as indicated. Exchange to be 
sold against this gold reserve only under the 
general regulations and with the cooperation 
of the Controller, the Bank selling its own ex- 
change, of course, freely, without reference 
to the Monetary Commission. 

(8) Act as agent of the treasury in receiving and 

disbursing government moneys under regula- 
tion of the treasury, presumably receiving in 
its different branches government moneys for 
deposit ; acting as agent for the Government 
in paying government salaries, etc. This 
work to include the administration of the 
debt obligations so far as it may be made 
practicable. This work done under the Board 
of Revenue, not the Monetary Commission, 
except regarding its own funds. 


b. Organization, 

The bank should be organized as a stock company 
for 25 or 30 years, with the liability of stockholders 
limited to the amount of their capital stock. The 
stock-holders presumably private individuals. The 
capital presumably some forty or fifty million dollars 
of the new coins, one quarter to be paid in before the 
bank begins business. 

c. Officers, 

( 1 ) Five to seven directors, elected by the shareholders. 

The President and the Vice-president to be chosen 
from among them. 

(2) One Manager, Chinese, and one Manager, foreign, 

to be elected by the directors with the approval of 
the Government, and to be given full power under 
the law laid down by the Government. 

(3) One auditor, to be appointed by the Government ; 

one or two auditors to be elected by the share- 

(4) Compradores, managers of branch banks, minor 

officers and assistants to be appointed by the board 
of directors. 

(5) The Controller of the Currency, who is a govern- 

ment official, to be a director of the bank ex officio. 
The directors to be chosen for a period of five years, 
and to be so classified that one at least will retire each 

The private business of the bank to be managed 
solely by the board of directors at their discretion. 
The public business to be managed by them under 
regulations laid down by the Government and under 
its, careful inspection through the Controller and audi- 
tor, and, if the Government wishes, also through an 
inspector to be appointed by the Government. 

d. Branches and agencies. 

The bank to establish branches in the leading com- 
mercial cities and to establish agencies throughout the 
country as rapidly as it is possible to extend the new 
monetary system, or wherever the bank finds it profit- 
able for its own business. 

The bank also in due time to establish its branches 
and agencies abroad. It may possibly be advisable at 


least for a time to make leading foreign banks its 
agents in connection with the reserve funds. 

e. The management. 

The management to be, in the main, in accordance 
with the customs of the leading foreign national banks. 
Reports of the exact condition of the bank to be pub- 
lished quarterly ; reports to be made on demand at any 
time to the Monetary Commission. So far as the 
government business in connection with the monetary 
system is concerned the books to be kept in accordance 
with the rules laid down by the Monetary Commission 
on advice of the General Accountant, and reports to 
be furnished him when asked for. Every effort to 
be made to secure public confidence by engaging well- 
known competent managers and by as great a degree 
of publicity of management as is practicable. 

f. Profits, 

From the profits dividends to the amount of six per 
cent, to be divided among the stockholders. If there 
is a surplus beyond, ten per cent, of this surplus to be 
placed in a reserve fund until that fund amounts to 
ten million dollars. Surplus beyond this to be divided 
into two parts between the stockholders and the state 
until the share of the stockholders amounts to eight 
per cent, of the capital. The remainder beyond that 
to be divided into three parts, one to the stockholders 
and two to the state. 



I. Regarding the importation of foreign coins and of 
bullion. — In order to carry out successfully its monetary reform, 
it seems probable that China will need to arrange with the vari- 
ous treaty powers a revision of the conditions regarding the im- 
portation of foreign coins and of bullion, so that she may either 
levy a duty upon their importation or forbid their importation 
altogether excepting under Government instruction. 

a. Reasons for checking importation, — ^The reasons for the 
checking of importation are as follows : 


(i) To secure and keep one uniform system of coinage. — So 
long as foreign coins are admitted free of duty, it is likely that 
the Mexican dollars and especially the British dollars will circu- 
late freely in many parts of China, particularly in the ^coast cities. 
If the new coins remain on the silver basis and are substantially 
of the same weight as these other coins, there is no reason why 
the people should make any special discrimination between them, 
and it is not likely that they will take the trouble to do so. In- 
deed the reputation of the Mexican dollar and especially that of 
the British dollar are so well established that for a long time to 
come many would take them in preference to the new dollar. 

If the new coins should be placed on the gold basis, very many 
of the Chinese would gradually come to prefer the new coins as 
more satisfactory for use, especially in the import trade and in all 
other cases where a fluctuation in exchange with foreign countries 
is detrimental. On the other hand, for the use of exporters who 
wish to buy material in the interior of the country, for those 
who have wages to pay to the more ignorant classes among the 
people, and for many others, the cheaper coin would be consid- 
ered more advantageous, and on that account the foreign coins 
would hold their own against these new coins for a long time 
unless special discrimination were made against them. 

Of course the Government might discriminate against them by 
refusing to receive them for obligations due the Government and 
might deprive them of their legal tender qualities, but even this 
discrimination would not prove sufficient to expel them from the 
country, and resort would probably be had ultimately, if that 
were possible, to discriminating taxation on contracts, as ex- 
plained below. 

Without stopping importation therefore it would seem practi- 
cally impossible to carry out the provisions of the treaties which 
require the establishment of a uniform coinage. 

(2) To keep up the value of the silver coins by making them, 
relatively speaking, scarce as compared with the demand for 
them. One important influence toward maintaining the value of 
the silver coins, particularly if they are placed on the gold basis, 
is to see that the quantity of money in circulation is limited to 
the needs of business. If the Government is able to exclude 
foreign coins and bullion, it will be able, in case of a threatened 
depreciation of its new coins, to withdraw some of them from 
circulation by receiving them in exchange for drafts on its gold 
reserve, and then by retaining them in the treasury to create a 


relative scarcity of the money in circulation. If there is no 
checking of importation, any such withdrawal of coins from cir- 
culation would have little or no effect, since their place would be 
filled by coins from Hongkong, by bullion, etc. To insure the 
maintenance of the gold parity without too great a strain on the 
gold reserve, a checking of importation is necessary. 

b. When regulate importation, — The regulation of importation 
of these coins and of bullion should be placed in the hands of 
the Chinese Government. It is possible, however, that foreign 
nations now having the right to demand the free importation of 
these articles, would not be willing to leave the regulation of 
their importation entirely in the hands of the Chinese Govern- 
ment. They would fear that such use might be made of the 
power that it would hamper business. In order to prevent such 
a result they will possibly insist that no restrictions be placed 
upon importation until a sufl&cient number of new coins are in 
circulation to prevent any tmdue scarcity of money. The deter- 
mination of this point is somewhat difficult. Two methods have 
been suggested. 

(i) When fixed number coined, — ^That treaties be negotiated 
declaring that as soon as China has a certain fixed number of the 
new coins in circulation, the Chinese Government shall thereafter 
impose such restrictions as seem to it wise. So little is known, 
however, regarding the money actually in circulation in China 
and the amount actually needed for doing business that it is 
probable that great difficulty would arise in securing agreement 
upon the quantity needed. Many business men would think it 
preferable to leave the matter to be settled by some joint com- 
mission made up of representatives of the Chinese Government, 
Chinese business men, and of foreign governments and business 

(2) When special board agrees, — It has been suggested, for 
example, that the power of restricting importation shall be exer- 
cised by the Chinese Government whenever the President of the 
Board of Revenue, the Controller, and the Managers of the 
National Bank representing the Chinese Government, and author- 
ized representatives of the Shanghai and Tientsin English, 
American, and Chinese Chambers of Commerce shall agree by a 
majority vote that the proper time has come. It is possible that 
it would be wise to add to this committee the ministers of 
the foreign powers resident in Peking or a certain number of 
consuls, but it is probable that this would simply increase the 


difficulties and be of no advantage whatever. A committee 
representing the business men would probably be more satis- 
factory to other nations as well as to China. 

2. Methods of negotiation. — In the case of the revision of 
the treaties one should consider where and how such treaties 
should be negotiated. 

(a) In China, — If they were negotiated at Peking with the 
ministers of the foreign powers, owing to the desire of each 
minister to make as strong a record as possible for accomplishing 
much for his government and to his natural desire to gratify his 
nationals and to secure more than do other members of the 
diplomatic corps, jealousies are likely to arise which make it 
difficult to secure satisfactory results. 

Moreover, the authorities in the home governments, owing to 
their lack of knowledge of actual conditions in China, are likely 
to hamper very seriously the actions of their ministers resident 
in Peking and thus lead again to delaj'^ and difficulty. 

(b) In foreign countries, — For the reasons given above it is 
usually better for the Chinese government to negotiate general 
treaties, requiring the agreement of several nations, in foreign 
countries, pro\dded she can have the services there of men who 
are thoroughly well acquainted with the subject in hand. It 
is asked, therefore, whether it would not be better for China 
to send to the foreign countries to assist the Chinese ministers 
in making these treaties and in keeping them uniform, some rep- 
resentative Chinese who is fully in the confidence of the govern- 
ment, together with some expert who knows fully the monetary 
situation in China and can explain with the greatest clearness 
to the foreign offices the exact needs of China and the benefit to 
those countries from acceding to her request. By such a method 
probably the best results would be reached most quickly. 



Before undertaking any matter of so great importance as the 
reform of a country's monetary system, it is advisable to make 
very careful estimates of the cost and of the results. Unless this 


is done, mistakes are likely to be made which will prove very- 
expensive financially and which may easily cause failure. 

In the following comparison of the costs and results of the 
two plans, ( I ) that which starts with the silver coins given a 
fixed value in gold and (2) that which starts with the silver 
coins at their bullion value and later, after the accumulation 
of a gold reserve, raises them to a fixed value in terms of gold, 
it is assumed, for convenience of comparison and because 
the calculating tables make it more convenient, that the interest 
both paid and received is at five per cent, and that one pound 
sterling equals ten of the new dollars. (At present one pound 
sterling equals about $10.11 Mexican.) 

In actual practice the government might probably have to pay 
from five and a half to six per cent, on a loan, but if so it might 
possibly be able to invest also at somewhat above five per cent. 
Whether the figures in themselves are exactly accurate or not, 
the comparison of the two plans will be fair. 

TABLE v.* 

I. Beginning With a Gold Beserve. 

Borrow at fve per cent, interest $ 40.000,000 

Annual interest charge $ 2,000,000 

/. Result at the end of Jive years. 

Amount of coins in circulation $200,000,000 

Gold reserve on hand sufficient for the needs 67,000,000 

To pay debt in five years requires in sinking fund 

annually % 7,240,000 

Annual interest charge % 2,000,000 

Total annual payment % 9 240.000 

<?. Result at the end of ten years. 

Amount of coin in circulation $400,000,000 

Gold reserve 107,000,000 

To pay debt in ten years requires in sinking fund 

annually $3,180,000 

Annual interest charge 2,000,000 

Total annual payment $ 5,180,000 

* In these tables there have been used as the basis for the calculations the 
interest and bond tables of the Mutual Life Insurance Co., of New York. 
If other tables were used with more or fewer decimals, the results would be 
slightly different. 


J. Result at the end of twefity years, 

(Loan for thirty years ; payment to begin after ten years.) 

Amount of coins in circulation! $800,000,000 

Gold reserve 187,000,000 

Annual expenses,' first ten years I 2,000,000 

Annual expenses, second ten years 3,208,000 

Annual expenses, third ten years 3,208,000 

Total expense for thirty years $84,160,000 

Total expense for first twenty years 52,080,000 

II. Beg^inning^ With Silver to Accumulate Gold. 

/. Result at the end of five years. 

Amount of coins in circulation {200,000.000 

Gold reserve, as before 67,000,000 

To raise $67,000,000 in five years, with money in 
vested at 5 per cent, and used for no other pur- 
pose, the annual payment is $ 12,127,000 

2. Result at the end of ten years. 

Amount of coins in circulation $400,000,000 

Gold reserve, as before 107,000,000 

To raise $107,000,000 in ten years requires an an- 
nual payment of $ 8,506,500 

To raise even $67,000,000 in ten years requires an 
annual payment of 5,326,500 

J. Result at the end of twenty years. 

Amount of coins in circulation $800,000,000 

Gold reserve, as before 187,000,000 

Annual expense $ 5,647,400 

Total expense for twenty years 1 1 2,948,000 

To close the whole transaction in five years on the first plan 

there would be a yearly saving of $ 2,727,000 

Tt) close the whole transaction in ten years on the first plan 

there would be a yearly saving of 3,326,500 

To close the whole transaction in thirty years as recommended, 
making payments on the principal of the debt the last twenty 
years, there would be a total saving, over merely raising a 
gold Teserve, in twenty years of 28,788,000 

Advantages of the first plan, — (i) The gold parity from the 
beginning, preventing the fluctuations from exchange and all 
losses to the Chinese Government in taxes, etc. , from any fall 
in the price of silver. (2) The cost, on a ten year basis including 
the payment of the debt, less each year by $3,326,500. 


It would probably be more convenient for China to borrow 
the money, to pay in thirty years, with the privilege of paying 
at any time after ten years, then for the first ten years to pay only 
the interest, that is, $2,000,000 annually. Afterwards the ac- 
cumulations will probably enable the debt to be paid very promptly 
or at any rate to be refunded at a lower rate of interest. If, 
however, it should be decided to carry the debt for the full 
thirty years, at the end of ten years the Government could 
begin accumulating money in a sinking fund. This would re- 
quire an additional payment for twenty years of $1,208,000 each 
year. The result would, therefore, be that for ten years the 
Government would pay each year $2,000,000 ; for the succeeding 
twenty years it would pay each year $3,208,000. There can be 
little doubt, however, that as a result of the great benefits to the 
country of the new system the burden of these last figures could 
be very much lightened. 

It should be borne in mind, too, that under the second system 
there would be all the fluctuations in exchange for at least ten 
years ; that these fluctuations would probably continue for five 
years more while the gold value of the coins is being established, 
and that during that five years there would need to be a complete 
readjustment of prices throughout the country which would dis- 
turb business very decidedly. Under the first plan the only dis- 
turbance to business would be at the beginning for four or five 
years, and this would not be more appreciable than it must be 
any way during these same five years in starting on the silver 




I. At same rate as with loan. — It has been suggested that 
if the new system were to begin on the silver basis, it might not 
be necessary to wait ten years before putting the silver coins on 
a gold basis. It might perhaps be done, it is thought, in three 
years or five years. It is not worth while to estimate carefully 
the relative costs of this procedure. If the system begins by issu- 
ing the coins at a fixed gold value, the gold reserve may begin 
very small and increase gradually in proportion to the number of 


new coins in circulation. If gold enough can be raised by the 
Government to change from the silver basis to the gold basis in 
five years, the system can be started on a gold basis without mak- 
ing any loan by raising the same amount of money in the same 
way ; and at the end of five years, on account of the greater 
profits of the gold system, there will be on hand $33,000,000 
more in a gold reserve than if the start is made on the silver 
basis. The figures to show this follow : 

Th^re must be raised each year $12,127,000 to accumulate in 
five years by a sinking fund $67,000,000, the smallest amount 
planned to change the new system to a gold basis at that time 
with 200,000,000 new silver coins in circulation. If there can 
be raised only $12,000,000 each year, it would be easy to start on 
the gold basis at once without making any loan. 



First Year, 

Coin { 40,000,000 

Of this in small silver and copper coins 10,000,000 

Silver which can be used to draw on gold reserve | 30,000,000 

Raise by taxation and place in gold reserve 12,000,000 

Profits of coinage at 20 per cent 8,000,000 

Total reserve at end of first year % 20.000.000 

(This is 66^ per cent of the amount available to draw on and will proba- 
bly be ample. ) 

Second Year. 

Coin % 40000,000 

Total in circulation 80,000,000 

Available for draft on gold fund not over 70,000,000 

Reserve already on hand 20.000,000 

Raised by taxation during second year 12,000,000 

Profits from coinage at 20 per cent 8,000 000 

Total reserve end of second year % 40,000,000 

(This is 57} per cent, and ample for the second year. ) 

Third Year, 

Total circulation would be $120,000,000 

Reserve 60.000,000 

Fourth Year, 

Total circulati n |,ooo 

Reserve 80,000,000 

Fifth Year, 

Total circulation $200,000,000 

Reserve 100,000,000 


The reserve is, then, at the end of the fifth year $33,cxx),ooo 
more than under the other plan at the end of an equal period, and 
is large enough so that by adding merely the annual profits of the 
coinage to the reserve, stopping after five years all further tax- 
ation for this purpose, it will be sufficient to protect the coinage 
for twenty years from the beginning, if the mints work at the 
same rate. 

Besides this benefit, there has been no disturbance of business 
as under the other system, which involves a change from silver 
prices to gold prices, and the same rate of taxation need be 
maintained a much shorter time. 

It is probable that during the later years a less reserve might 
be needed than is indicated ; but that fact would be still more to 
the advantage of the system which starts on the gold basis. 
Confidence is gained some years sooner and more gold is readily 
available to be put to other uses. 

The advantage in this case, as in all the others, comes, of course, 
from the added coinage profit when silver coins are issued at a 
gold value. 

2. At slower rate than v^ith loan. — It being considered by 
some inadvisable for China to make any loan in connection with 
the new monetary system, the following new estimates are given 
to show the probable cost of establishing the monetary system 
without a loan, in a cheaper, though not quite so rapid a way as 
with a loan. 

It has been suggested by the Monetary Commission that China 
could probably raise 7,000,000 taels to start the new monetary 
system. In the following estimates it is suggested that 7,000,000 
taels each year be raised for the first two years ; thereafter 3,500,- 
000 taels annually. 

It is probable that after the sixth year the percentage of re- 
serve could be reduced somewhat, so that quite possibly no 
further sums would need to be contributed by the Government 
for the further development of the system. 

It is assumed for the purpose of maintaining whole numbers 
in the computations and for the purpose of keeping the estimates 
in dollars, so as to admit of more ready comparison with previous 
papers, that one dollar equals seventy tael cents. Seven million 
taels, then, would equal $10,000,000. 

For the first year it is assumed that half of this sum is set 
aside as a reserve and that half is used as working capital. For 
the second year and thereafter $10,000,000 is kept as working 


capital. By ''working capital " is meant particularly the money 
used for the purchase of bullion and mint supplies. 

No account is taken of the interest on the reserve. This could 
be used either to reduce the annual contribution from taxation 
or to increase the rate of coinage, thus insuring the more rapid 
success of the system. The main difficulty, of course, will be 
during the first two years ; but it is not thought that these diffi- 
culties are by any means insuperable. 

This plan would secure for China the fixed value in gold of the 
the new coins from the beginning ; it would save the high profit 
from seigniorage, and it would avoid any loan. The upright- 
ness and skill required for the management would be substan- 
tially the same as in previous plans. 


First Year, 

Working capital ^ , $ 5,ooo,cxx> 

Reserve 5,000,000 

Coin 20,000,000 

Profit to add to reserve 4,000,000 

Total circulation 20.000,000 

Total reserve . 9 000,000 

Second Year, 

Working capital $ 10,000,000 

Coin 40,000,000 

Profit to add to reserve 8,000,000 

In circulation 60,000,000 

Former reserve 9,000,000 

Add reserve from taxation 5,000,000 

Total reserve 22,000,000 

Third Year. 

Working capital $ 10,000,000 

Coin 40,000,000 

Profit to add to reserve 8,000,000 

In circulation 100,000,000 

Former reserve 22,000,000 

Add reserve from taxation 5,000,000 

Total reserve 35,000,006 

Fourth Year, 

Working capital $ 10,000,000 

Coin 40,000,000 

Profit to add to reserve 8,000,000 

In circulation - 140,000,000 

Add reserve from taxation 5,OQO,oqo 

Former reserve . 35,000,000 

Total reserve 48,000,000 



Fifth Year, 

Working capital % 10,000,000 

Coin 40,000,000 

Profit to add to reserve 8,000,000 

In circulation 180,000,000 

Former reserve 48,000,000 

Add reserve from taxation 5,000,000 

Total reserve 61,000,000 

Sixth Year. 

Working capital % 10,000,000 

Coin 40,000,000 

Profit to add to reserve 8.000,000 

In circulation 220,000,000 

Former reserve 61,000,000 

Add reserve from taxation 5,000,000 

Total reserve 74,000,000 

While the reserve seems small for the first two years, it should 
be kept in mind that the new copper and nickel coins, which 
might make a considerable part of the coins in circulation, would 
make little, if any, demand upon the reserve. Furthermore, the 
rate of coinage might be checked somewhat, if more time seemed 
advisable to secure confidence and thus lessen the demand on the 


The following specifications regarding coinage are suggested 
as perhaps reasonable if it is decided to establish the new mone- 
tary system on the silver basis and to make the new dollar sev- 
enty-two hundredths of a Kuping tael, as the committee has 
proposed. It is quite possible that the specifications would be 
equally satisfactory if it were decided to give the coins a fixed 
value in terms of gold, but in that case the matter should be dis- 
cussed again fully before coinage is begun. These weights are 
in decigrams so as to make, generally speaking, whole numbers. 

Inasmuch as the coins are ultimately to be given a value inde- 
pendent of their weight, it is inadvisable to refer to their tael 
weight either on the coin or in the law. Moreover the tael 
weight is not exactly known and uniform, so that it will be neces- 
sary for the government to fix weights in grains or decigrams 


before the confidence of business men, native or foreign, can be 
secured and held. The metric system is followed here as the 
system most generally approved. 

According to the treaty with Japan regarding the settlement of 
the war indemnity in gold, it was decided for that special purpose 
that the Kuping tael was 575.82 grains. This gives the weight 
of seventy- two hundredths of a Kuping tael as 268.65 decigrams. 
The silver standard, therefore, in the nearest divisible round 
numbers would be 268 decigrams. We had therefore suggested 
the following table : 


weight in Kind oj Amount of 

decigrams alloy alloy. 

One dollar 268 Copper .1 

Fifty cents 134 *' 2 

Twenty cen IS 53.6 " .2 

Ten cents 268 •* .2 

If it were thought not unwise to make the new dollar a trifle 
heavier than the present one (and there would be no objection 
to this if it were given a gold value), there would be an easier 
division if the dollar were to weigh 270 decigrams. In that case 
the dollar should be given a gold value presumably of some fifty- 
five cents American or two shillings three pence English. Should 
silver rise much, it might be well to make the coin 60 or 62.5 
cents American ; or it might be thought best to give the new 
dollar a value of exactly fifty cents American (gold) or two shill- 
ings English and make the coin slightly lighter than the Mexican 
dollar so that there would remain a coinage profit of 15 per cent, 
or 20 per cent., a sufiicient margin perhaps for any probable rise 
in the price of silver bullion ; but the question of exact gold 
value is not under consideration here. 


Cross Percentage Composition, 

weight in 


decigrams Copper Nickel Tin Zinc 

Five cents 50 75 25 ._ 

One cent 70 95 i 4 

Half cent 35 95 i 4 

Two miUs (cash) .__ 25 50 _. 50 

One mill 12.5 50 50 

The legal limit of variation from these weights and degrees of 
fineness should be made to conform substantially to those of the 
leading countries. 




I. Difficulties of task. Reasons for foreigners. — The 
successful organization and direction of a monetary system is one 
of the most complicated and difficult problems which any state 
has to undertake. The experience of nearly every state of 
Europe and of America shows that mistakes in such systems bring 
enormous losses in commerce and industry to the countries con- 
cerned, and that frequently such mistakes lead to commercial 
crises from the effects of which a country does not recover for 
several years. Moreover, they often leave a system permanently- 

The starting of a new monetary system in a country like 
China, with its enormous population, its great extent of territory, 
its incomplete methods of communication, and its mingling of 
foreign and Chinese business methods, is a task of especial dif- 
ficulty and this makes it of particular importance that no mis- 
takes be made at the beginning. China should have the advice 
of some of the best experts in the world. 

A few of these experts must at first probably be foreigners for 
the following reasons : 

a. Few Chinese experts, — It seems to be the general opinion, 
Chinese and foreign, that owing to her previous methods of 
doing business without a well organized monetary system there 
are at present no Chinese who have the requisite training and 
experience to undertake the task without foreign assistance. 

b. Need of confidence, — Even if there were such Chinese at 
present, it is generally said that neither Chinese business men 
nor foreigners have the confidence in Chinese experts that is 
absolutely essential to the success of the new system, while 
they do have confidence in trained foreigners of reputation. As 
the system cannot succeed unless the people give it their confi- 
dence, it is apparent that some foreigners of special ability and 
reputation should be engaged at first. The refusal on the part 
of the Chinese Government to engage such experts would cer- 
tainly be interpreted to its discredit by some of the leading 
Chinese business men themselves, as well as by foreign business 
men and by foreign Governments. From what is often said by 
Chinese business men they might readily interpret such action as 


evidence of a lack of sincerity, and of good faith on the part of 
the Chinese Government. They might even interpret it to mean 
that the Chinese officials undertaking the work had their own 
special profit in view rather than the benefit of the Chinese 

2. Relative need for experts under the two systems. — 
Under which method of beginning the new monetary system are 
experts most needed ? 

a. Under silver system. — The system which starts with the 
introduction of the silver coins issued at their bullion value, with 
the intention of raising those coins within a few years to a fixed 
value in terms of gold, is, in the long run, the more difficult, 
and certainly requires as able experts as the other. Moreover, 
these experts are as much needed at the beginning of the system. 

(i) Care must be taken that nothing is done, either in de- 
termining the form of the coins, their relative weights and rela- 
tions to one another and to the coins already in existence or in 
their methods of introduction which will hamper the change to 
a gold system when the proper time shall have arrived. 

(2) The problem arising from melting and exportation of many 
of the new coins, together with the old, will make it far more 
difficult to secure and keep accurate information regarding the 
conditions of the currency, so as to know when and how to un- 
dertake the change. There will be no melting of the coins under 
the gold system. 

(3) A gold reserve must be gradually accumulated. The 
providing and managing of sources of revenue for this gold re- 
serve and the due investment of it until a sufficient amount of it 
has been accumulated, requires much skill and discretion, else 
there will be a great waste. 

(4) When business has once become adjusted to the new sys- 
tem of coins and the present coins and sycee are largely out 
of the way, business men will shrink from the disturbance of 
business which another change is sure to create, and it will re- 
quire great confidence in the Controller of the Currency on the 
part of the people and great skill on his part to select the right 
time to begin the change and to find the right methods to carry it 
through without arousing severe criticism and causing the great- 
est confusion in business. 

b. Under gold system, — Under the system of starting with 
gold the main tasks at first will be the following : 

(i) There will be the same care to be taken regarding the 
forms of the coins, the purity of the minting, etc. 


(2) The problems of introducing the coins among the people, 
inasmuch as their value will not depend upon their weight, seems 
somewhat different from that in the other case and somewhat 
more difficult. In reality it is about the same. In both cases 
the Government must fix and must regulate from time to time for 
tax purposes and for all government business the varying rates 
of exchange of the new coins for bullion silver, copper cash, the 
present dollars, etc. This must be done for all government busi- 
ness. Private banks and merchants will make their own rates, 
but in practice they will accept mostly the government rates. 
This difficult task must be met in either case whether the coins 
be given a gold value or not. It makes little difference to the 
people whether the rate for one tael is $1.31, say, under the silver 
plan or, say, $1.10 under the gold parity. 

( 3 ) Unless the Government can raise considerable revenue for 
the first four or five years, it will be necessary to raise a small 
loan ; in fact it will probably be much easier to raise the loan 
than to secure under the first plan the requisite revenue for the 
accumulation of a gold reserve by a sinking fund. 

(4) Treaties with foreign powers regarding prohibition of 
importation of foreign coins, bullion, etc., must be negotiated in 
either case, but they would probably take effect first under the 
plan of starting on the gold basis. It is probable that they 
would be more readily secured from foreign governments under 
that plan. 

3. Experts needed especially at beginning of system. 
The experts are needed especially at the beginning of the 

(a) Making plans is difficult, — The making out of the detailed 
plans regarding coinage, the introduction of the system, organi- 
zation of the bank, rules for minting, etc., and the organization 
of the whole of the working force is by far the most difficult 
part of the problem. After the system has been thoroughly or- 
ganized and has been running well for a few years much less 
expert knowledge will be required. 

(b) Making plajis most important part of work. — The first 
work, as may be judged, is not only the most difficult part, but 
it is by far the most important part of the work, inasmuch as it 
involves the making of far reaching plans which are to affect the 
welfare of every person in the Empire for many decades to come. 

When a battleship is to be built or a great manufacturing es- 
tablishment to be organized the experts are called in at the very 
beginning to make the detailed plans. 


(c) Mistakes at beginning often irreparable, — Mistakes in 
making the plans at the beginning are usually irreparable and even 
if not absolutely irreparable it will prove exceedingly expensive 
to change to a better plan. Few countries in the world to-day 
have monetary systems that they consider perfect on account of 
mistakes that have been made in the beginning which it has 
been impossible thereafter to rectify. 

Consider again the difficulty of remodelling a battleship half 
built on wrong plans made by a poorly trained naval architect, or 
of a great factory building poorly planned for the machinery 
which is to be used and for the work to be accomplished. 

4. Selection of experts. — The Chinese Government will do 
well to be cautious in employing foreigners, but it should be 
remembered that the Chinese Government selects the foreign ex- 
perts not as its masters but as its trained workmen. 

(a) For ability and fitness only, — Experts should be selected 
only for their ability and for their fitness for their positions. 
The Chinese Government should not give any person a position 
to please a foreign Government or because he has paid for that 
position, or merely because he is a friend of China's. While he 
must be friendly to China and devoted to her interests in his busi- 
ness, he must first of all be an expert who knows his business 
thoroughly. He should also, of course, understand as fully as 
possible Chinese conditions, but it is far easier in China for a 
thorough expert to become posted regarding Chinese conditions 
than for a person knowing Chinese well, but not an expert, to 
become an expert. 

(b) Contracts definite. — Contracts should be made with the 
experts which are perfectly definite. 

(i) As regards time. — It is probable that it would be well to 
engage these experts for a fixed period of not over five years, 
with chance of renewal of contract, with the right to discharge 
them at any time in case they prove inefficient or in case they 
exceed their powers. 

(2) As regards powers — The contract should be perfectly 
explicit regarding the field of work which the expert occupies. 
While he should be given much discretion in his special field, an 
attempt to control matters outside of his field without a new 
contract in which the Chinese Government joins should be 
sufficient cause for his prompt discharge. 

(c) Associate Chinese with experts, — Associate with the three 
or four leading experts Chinese of ability appointed to promi- 


nent positions, who may know all of the details of the work of 
the expert and themselves become expert. They should not be 
given power to hamper the work of the expert, as he must 
take the responsibility under the Monetary Commission ; but 
they should have the right to know everything that he does in 
his work, to make suggestions, to give him information regard- 
ing Chinese conditions, and to aid in directing the Chinese 

(d) Establish training school under experts, — There should 
be established under these experts schools in which should be 
trained in this special field of work Chinese to take positions in 
the department as the work develops. 

The way to get rid finally of the foreign experts is by training 
men who, from their training, experience, high character, and 
the confidence of the business community, are fitted to take their 
places. A failure or serious mistake in the establishment of the 
system in the first place, through neglect to secure in time com- 
petent expert assistants, would seriously discredit the Chinese 
Government, and would have the normal result later on of 
forcing into the Chinese service more experts, and that, too, for 
a longer time than would come from a selection of a few of the 
very highest grade at the beginning. 




I. Coniparison of two systems. — It has been proposed by 
the Government to start the monetary system on the silver and 
afterwards to change to the gold basis. It has been proposed by 
the American commissioner to start the system with silver coins 
which have been given a fixed value in gold from the beginning. 

The difficulties of the introduction of the system are substan- 
tially the same in degree in either case, although the difficulties 
are in some respects slightly different in kind. In either case 
the same amoimt and character of foreign expert help would be 

a. The same care must be taken regarding minting of the 


b. The same skill is required in the establishment and man- 
agement of the national bank, although its work would be 
shghtly different in kind in the two cases. 

c. The same skill and care is requisite in keeping the accounts 
and collecting statistics, which are absolutely essential for intel- 
Hgent management, under the two systems. Inasmuch, how- 
ever, as under the silver system coins are much more likely 
to be melted down than under the system of gold parity, it 
would be absolutely impossible to have the same accuracy and 
knowledge under the silver system that could be secured under 
the gold. 

d. The difficulties of introducing the coins among the people 
are practically the same in the two cases, although it is usually 
thought that the diflficulties are much less under the silver 
system. That would be the case if China had a fully devel- 
oped coinage system now, so that the only problem was that 
of exchanging one new coin for another old coin as in the Straits 
Settlements. If those two coins could be exchanged at par, it 
would be easier than to exchange the old silver coins for one 
given a gold value fifteen or twenty per cent, higher, so that 
say only eighty cents of the new coin would exchange for a 
dollar of the old. The present problem in China, however, is 
not at all of that nature. This is a point which has been often 
overlooked, and this mistake has led to mistaken advice which, 
if followed, will cost the Chinese government and the Chinese 
people many millions of dollars and serious disturbances in bus- 

The great bulk of the business in China is done with silver bull- 
ion and copper cash. In consequence the Government is com- 
pelled, even if it introduces the new silver coins on the silver basis, 
to give to them an official rate of exchange in terms of the various 
taels in circulation. For instance, if the new coin is made to 
weigh seventy-two hundredths of a Kuping tael, when the coin 
is introduced into Peking the government would fix the rate of 
exchange with the Kungfa tael. The Government in posting 
the official rate would probably say, therefore, that it would re- 
ceive in payment of taxes instead of a tael $1.30 or $1.31 of the 
new coin. In case the dollar had been given a gold value, the 
notice would be that for each tael it would receive $1.10 or $1.12 
of the new coins, depending upon the rate established. In the 
interior where the people are entirely unfamiliar with coins of 
any kind, they would take the new coins on the gold basis at say 


$ 1. 1 o or $1.12 for the tael about as readily as they would if the 
coins were on the silver basis at say $1.30 or $1.32. In the 
treaty ports, where the people are accustomed to the Peiyang or 
Hupeh dollars, it may be that a new dollar which should pass 
exactly at par with them would have temporarily a slight ad- 
vantage. Taking China as a whole, however, the difl&culties of 
introduction are substantially the same on the gold as on the 
silver basis, provided it is clearly explained that the Government 
always receives the new coins at their published gold value and 
that the people have the chance to see that this is done when 
they pay their taxes. 

e. The difficulties after the first introduction, at any rate, are 
much greater, immeasurably greater, if the start is made on the 
silver system. With the start made on the gold system, when 
the coins are once introduced the difficulties are over. With the 
start on the silver system, when the coins are introduced they are 
given a silver value. When, some years later, it is proposed to 
change to the gold basis, the people are told that the dollar, which 
they had supposed was the standard, is no longer the standard ; 
that it is not as good as it ought to be, and that the Government, 
therefore, proposes to give it a higher value. Whereas before it 
was received at seventy- two tael cents, the Government now will 
receive it at seventy- four cents, then at seventy-six cents, then at 
seventy-eight cents, and so on, until it has reached the value de- 
cided upon, say ninety-two tael cents. This process of gradually- 
raising the value, by the Government changing its rates for re- 
ceiving it and selling gold in exchange for it at these rates, must 
cover a period of several years, otherwise it will lead to the 
greatest speculation and to the hoarding of the coins to make 
the profit when the sudden change is made of adding fifteen to 
twenty per cent, to the value of the coins ; and this would 
probably cause a commercial crisis. 

On the whole, then, the difficulties of establishing a gold ex- 
change system from the beginning are very much less than if 
the system, established on the silver basis, is afterwards to be 
changed to gold. 

2. Expenses compared. — The expenses of establishing and 
carrying out the system are very much less if one starts with 
gold than if one starts with silver and afterwards changes to 
gold. Other papers of these memoranda, giving the compara- 
tive cost of the two methods, makes this clear beyond all pos- 
sibility of dispute. 


3- Method of starting system. — Either system should begin 
in a small way, especiall)'^ perhaps the system with a gold parity. 
One province, preferably Chili, should be selected first. As soon 
as there is a suitable amount of coins on hand, the Government 
should decide that it would start the system in Peking, say, and 
a sufiicient quantity of the new coins of the various denomina- 
tions for use in that city should be provided. The people would 
be notified that the Government would exchange these coins free 
of charge at certain published rates for their provincial coins, 
sycee and copper coins, and a suitable number of agencies where 
these exchanges could be made would be provided. It would 
then be declared further that at a certain date in the future, 
which would be named, all local obligations due the government 
in cash must be paid in the new coins. This would include 
the octroi and small fees of all kinds, and the Government would 
establish exchange shops near the stations where the chief pay- 
ments are made, so that the people could, without trouble, ex- 
change their sycee and copper cash for the new coins at fixed 
legal rates. Of course for a time taxes payable in kind would 
remain as before. 

As soon as the number of coins minted had increased, the same 
plan would be followed in Tientsin, then, say, in Pao Ting Fu, 
etc., as rapidly as the new coins could be supplied and organiza- 
tion could be made throughout the province of Chili. The 
Government would of course agree from the beginning to receive 
these coins at their fixed gold value anywhere in the Empire for 
obligations due to it, provided the people wanted to present them. 
It would compel payment of obligations in these new coins only 
gradually as it had a sufficient supply for the local market on 
hand and had provided exchange shops in reasonable numbers 
for the people. Of course when these arrangements were made 
in the larger places, the merchants would soon take the coins at 
the regular value in the villages and elsewhere, so that in a com- 
paratively short time the change would be made from one money 
to the other without any special intervention on the part of the 

As soon as the Government began insisting upon the receipt 
of these coins in obligations due itself, it would also begin pay- 
ing out these new coins in the payment of salaries, for supplies, 
etc. , paying them out at the same rate at which it received them. 
Following the Province of Chili, would come, of course, the 
Province of Kiangsii, for the sake of Shanghai, Kwang-tung, 


Hupeh, etc. No pressurcy anywhere, would be brought upon 
the people to take these coins excepting to pay their obligations 
due the Government, and that would be done simply to accustom 
the people to their use, and such complete exchange arrange- 
ments would be made that there would be no hardship. 

4. Loan and security. — A small loan, say of about 40,000,000 
of the new dollars, or a little more than ;^4,ooo,ooo, would 
doubtless be the most convenient way of securing money for the 
new system, though a loan is not necessary if the annual revenue 
can be increased somewhat for a few years. From careful discus- 
sion of this matter with people who are accustomed to making 
loans, there seems little doubt that China could make a loan at a 
reasonable rate of interest, possibly on the security merely of the 
gold reserve and the stock of coins on hand in the management 
of the department, with the added guarantee of the loan by the 
Chinese Government. It would doubtless be better, however, in 
many ways for the Government to supply another basis for the 
loan, such as, say, the receipts of an opium farm in Shanghai, 
Canton, and one or two other cities, and to keep the gold reserve 
to be used as a special security in case an emergency should arise. 
However, the ability of China to make the loan on reasonable 
terms is clear. The advisability of making a loan is a suitable 
subject for discussion ; and, as has appeared, China is probably 
able to start the system without a loan if it is thought best to 
do so. 

5. Engagement of experts. — It will be necessary, in order 
to secure the proper skill in management and especially to secure 
confidence on the part of business men, both Chinese and foreign, 
that a few of the very best foreign experts be secured, especially 
for a few years at the beginning of the system. These experts 
would, of course, be under the Chinese Government. Their 
fields of labor would be rigidly defined in their appointments, so 
that the Chinese Government would take no risk of their usurp- 
ing power unduly ; but within the field of work assigned them 
they would need to have much discretion left them, inasmuch as 
the work is very difficult and almost from day to day must be 
adapted to the changing needs. Foreign Governments consider 
the establishment of their monetary system one of their most 
difficult problems. 

The experts chiefly needed at first would be a Controller in 
general charge of the whole system, whose business it should 
be to plan out the details of the work and the new laws needed, 


the putting of those laws into force, the direction of the general 
organization of the system and its gradual introduction through- 
out the country, and the direction of its management. He 
should nominate to the Government for its appointment (a) a 
General Superintendent of all of the mints. This man should 
be thoroughly acquainted with all foreign methods of mint 
management and be well known, so that his name would be a 
guarantee to everyone of the absolute honesty of both weight 
and touch of the new coins and should also be a guarantee to 
the Government that the work was being done at the lowest 
possible cost. 

(b) An Accountant or Statistician. It is necessary that all the 
mints and different agencies for the introduction of the system 
should keep their books in harmony, so that from month to month, 
almost from day to day, the Controller can learn the exact con- 
dition of the mints as regards supply, the rate of exchange, the 
amount of money, silver, etc., on hand, in each of the agencies 
for the introduction of the money throughout the country, the 
condition of the national bank and its reserve, etc. The Ac- 
countant, therefore, must have authority to collect this informa- 
tion from the various sources, and to compel them to keep their 
books in the ways which he prescribes. He should be the me- 
dium through whom the information needed by the Controller 
should be gathered, and he should publish reports regularly. 

(c) The National Bank should be organized under a special law 
prescribing strictly its powers and duties so that the Government 
would be protected absolutely as long as the law was observed. 
Still further, the Controller, a government official, would be ex 
officio a director of the bank so that he should know the condi- 
tions and details of the management of the bank. The Govern- 
ment should also appoint auditors and inspectors to see that the 
bank kept within the law. The chief foreign Manager of the 
bank should probably be selected by the board of directors elected 
by the stockholders, but his election should be approved by the 
Government on the recommendation of the Controller. Inasmuch 
as the bank has so much government work to do and inasmuch 
as it must be run in harmony with the new monetary system, it 
is necessary that its Manager and the Controller work in the 
closest harmony. Possibly it would be best to have the Manager 
of the bank appointed by the Government on the nomination of 
the Controller ; but probably the way first suggested would be 


6. Contracts with experts.— With these foreign experts the 
Government should make rigid contracts so that there could 
be no dispute as to their field of work, and the Government 
should in those fields give them practically full power. They 
should not be allowed to exercise authority outside their special 
fields of work. 

It would be well for the Government to place with these 
foreign experts, who, it should be kept in mind, are skilled 
workmen and advisers employed by the Chinese Government and 
not in any sense its dictators, Chinese who are willing to make 
this kind of work their business, and who, as understudies, will 
know all the work of the foreign experts and will assist them in 
every way possible. To a considerable extent, in connection with 
the foreign experts, they will take charge of the Chinese subordi- 
nates who are employed ; but care must be taken, especially 
during the first years, that they do not hamper the work of the 

The Controller should also start a training school to run for 
some years until he gets a good many well- trained young Chinese 
to take positions in the monetary system in the provinces. 

7. Relation of foreign Governments. - In securing these 
experts the Government should not in any way accept the dicta- 
tion of any foreign Government. Men should be selected for 
their knowledge and ability to do their work, and for this only. 
The banker should doubtless be one of the most experienced 
and ablest foreign bankers who have done business in the East for 
the last few years and one who has the confidence of everyone. 
The Controller should be a man who knows monetary science and 
monetary systems thoroughly, who has had experience in estab- 
lishing and administering foreign systems, and whose reputation 
will give confidence to business men, Chinese and foreign. The 
same thing should be said in their respective fields with reference 
to the Superintendent of the Mints and of the Accountant. The 
Accountant should be, if possible, one who knows the Chinese 
language thoroughly and Chinese ways of doing business. Pre- 
sumably the Chambers of Commerce might be consulted to 
advantage by the Controller in securing the names of two or 
three of the leading men from whom the Accountant should be 
selected by the Monetary Commission. Presumably some one of 
experience in the Imperial customs service would be the right 
man, although possibly some one of experience in private busi- 
ness might be better equipped. 


After the first few men are selected there will be little diffi- 
culty in getting their subordinates. For branch banks, etc., 
the board of directors with their Manager would, of course, con- 
trol ; for the more directly subordinate government positions the 
Controller would, of course, name (nominate, not appoint) the 
men ; in the mints practically in accordance with the wishes of 
the Superintendent of the Mints ; in the accounting department, at 
the suggestion of the chief Accountant, and so on. In the estab- 
lishment of the new monetary system in various places the in- 
spectors necessary would, of course, be more directly the personal 
subordinates of the Controller. The main difficulty is in getting 
the right start with the right men ; thereafter the system will 
develop easily. 



In the establishment of the new monetary system it is import- 
ant that the Chinese Government arrange soon a plan for its gen- 
eral lines of work, so that the whole system may be devoloped 
in an orderly manner without mistakes. So long as the new 
coins are not put into actual circulation there will be relatively 
little harm done by a delay of a few weeks, or even of a few 
months, after the first steps are taken, so as to permit the defi- 
nite formulation of plans. If the new coins are put into circula- 
tion before the plans are practically all worked out, it may do 
great harm since there will be great difficulty in making any 
changes thereafter. 

The following indicates the chief lines of activity which the 
Government must follow in the comparatively near future. So 
far as possible the order in which action should be taken is indi- 

I. The Appointment of experts. — a. The Controller of 
the Currency, — Inasmuch as the Controller of the Currency will 
be held responsible by the Chinese government for the success of 
the system and inasmuch as it will expect to rely, to a consider- 
able extent, upon his judgment in making plans for the organ- 
ization of the system, his appointment should be made as soon 
as the Government can find a satisfactory man. This is equally 
necessary whether the system starts on a gold or on a silver 


basis. It is merely good business policy to put the responsibility 
upon some one individual to whom the Government can apply at 
any time for suggestions, from whom it can demand reports, and 
with whom it will expect to counsel regularly regarding the de- 
velopment of the system. No other plan would be in accord- 
ance with good practical business methods. 

Inasmuch as he is to be held responsible for the successful and 
harmonious working of the system, the other chief officials to be 
appointed by the Government should have their names suggested 
to the Government by the Controller. In that way only can it be 
certain that friction, which might be dangerous to the success of 
the system, will be avoided. The Government should, of course, 
indicate to the Controller certain general matters in connection 
with these appointments if it wishes to do so, such as the nation- 
ality of the appointee which would be preferable, if it has any 
preference, the general type of man desired, etc. The two ap- 
pointments (aside from a secretary, or an assistant), that should 
probably be made first are : 

b. General Superintendent of Mints. — ^This appointment should 
be made comparatively soon, inasmuch as under the general 
management of the Superintendent, in accordance with direc- 
tions issued to him by the Government through the Controller, 
should be made the inspection of all the existing provincial 
mints, the inventory of their machinery, so as to bring out their 
capacity, the profits which they can make, etc. 

There should be ascertained also, either by the General Superin- 
tendent or by officials acting for the Controller, the profits which 
have been made by the mints of late years. The Superintendent 
should inquire likewise carefully into the skill and trustworthi- 
ness of the present managers and also regarding the most 
responsible workmen. The information indicated above is neces- 
sary in order that just and satisfactory arrangements can be made 
with the Viceroys for the transference of their mints in due time, 
and for the satisfactory working under the new system of the 
mints when they are once taken over. As the General Superin- 
tendent of Mints will be held responsible for every ounce of sil- 
ver or gold placed in his hands, he must have a voice in selecting 
his subordinates, — ^so far as is possible from those now working. 
He should be consulted also regarding the edicts that will need 
to be passed in connection with the work of the mints. 

c. General Accountant. — It is not necessary that this appoint- 
ment should be made immediately, and still there should not be 


too long a delay, inasmuch as the Accountant should prepare be- 
forehand, on consultation with the Controller, so as to be sure 
that the whole system is understood alike by them both, his plans 
for uniform accounting in all of the mints, his forms for the re- 
ports on public business of the national bank, as well as for the 
various ofl&ces for the distribution of the coins, etc. , throughout 
the Empire. He will need also to have furnished him, as the 
basis of the accounts of the entire system, the inventory of the 
material in the existing mints, the values of the machinery, mint 
buildings, etc. Such preparation before the actual work of the 
system begins will require considerable time. 

2. Controller to prepare and submit drafts of edicts. , 
— ^The Government should instruct the Controller to study care- 
fully with the Superintendent of Mints, the General Accountant, 
and others, then to prepare and submit for its consideration and 
action, as soon as it can be satisfactorily done, drafts of edicts on 
the following subjects : 

a. General currency law, — A general currency law which 
shall prescribe in outline the organization of the system. 

b. Minting law, — ^A minting law giving (i) a description 
of the coins to be issued ; (2) the limit of variation in weight 
and fineness of the coins to be issued ; (3) regulations regarding 
inspection of coins, purchase of bullion, the issue of coins, etc. 

c. Gold reserve law, — An edict creating a gold reserve 
fund and establishing general regulations for its management. 

d. Banking laws, — (i) A law for the establishment of a 
national bank. (2) A law regulating the issue of bank notes. 

These edicts should be drawn with the greatest care. A vari- 
ation of one decigram in the weight assigned to the gold stand- 
ard coin would make a difference of more than $20,000,000 prob- 
ably in five or six years. 

It is not necessary that all of these edicts be passed immedi- 
ately, but they should be prepared by the Controller as rapidly as 
they are needed, for submission to the Monetary Commission in 
ample time for full discussion of them by the Commission with 
the Controller before they need to be issued. 

3. Regulations regarding loans. — If it is decided to make 
a loan in order that the new coins may be issued with a fixed 
value in terms of gold, it is desirable that steps be taken soon in 
connection with that matter. (a) The question of proper 
security for the loan and provision for the payment of the inter- 
est and in due time of the principal should be considered, (b) 



Negotiations should be entered into to secure the loan on the 
best terms by securing offers from various parties to see who will 
offer the best terms. 

4. Regulations regarding re venue. ^If it should be 
found that a loan is not necessary, provisions will still need to be 
made very soon to secure the revenue requisite from the begin- 
ning either for the proper development of the system with the 
coins on a gold value or for the rapid accumulation of a gold 

5. Modification of treaties. — Steps should be taken in the 
near future for negotiating amendments to the treaties with for- 
eign powers so far as they are necessary for limiting the importa- 
tion of foreign silver coins and bullion. 

These measures will perhaps not be needed for a considerable 
time, but there is likely to be much delay in securing the con- 
sent of all of the treaty powers, and when it does become neces- 
sary to limit the importation of silver coins and bullion, it would 
be a great misfortune if that step could not be taken promptly. 

With certain powers it might also be desirable to discuss 
informally the question of their attitude in the future toward 
taxation on business conducted in any currency excepting the 
new currency. For these measures a monetary expert will be 
needed with the Chinese Treaty Commissioners. 

6. Organization of National Bank. — The Government should 
also instruct the Controller to suggest steps in due time 
for the organization of a National Bank and for beginning busi- 
ness with it. It is not absolutely necessary that the bank be 
started at any fixed time, but it would probably save some 
money to the Government, and it would certainly be desirable, if 
it is practicable, for the bank to be organized so as to begin busi- 
ness by the time that the new coins are issued. It would, of 
course, be an advantage if the bank could be started almost im- 
mediately, so as to have its buildings ready, its corps of assist- 
ants engaged and somewhat accustomed to their work, and some 
patronage already secured for the private business before it 
became necessary for it to take up its public business. 

In suggesting to the Monetary Commission the draft of the law 
for the establishment of a National Bank, the Controller would, 
of course, suggest methods of securing capital, organizing the 
bank, etc., and he should be ex officio a director of the bank. 
The Manager, elected presumably by the directors, should be 
subject to approval by the Government on his name being 
referred to it by the Controller. 


It will be noted in the outline above that the entire power 
and control rests with the Government ^ but that an organization 
is indicated so that it can receive continually from the Controller, 
and through him from each one of . the subordinate officials, sug- 
gestions regarding the details of organization, of management, 
of appointment of suitable men, etc. The Government will, of 
course, view these suggestions carefully ; and finally, after full 
and careful discussion with the experts appointed, so that there 
will be no misunderstanding, the Government will take action. 
So far as possible its control will be largely in the form of these 
general edicts and a careful inspection to see that these laws are 
rigidly observed. The contracts made with the experts would, 
of course, prescribe strictly their powers and duties, and they 
must confine their activities to those fields. Within those 
fields they should be allowed much discretion. 

It is only through this method of centralizing responsibility 
in the Controller and of dealing with the details of the system 
through the heads of the different departments and eventually 
through the subordinates, each of whom is to be held strictly 
responsible by his immediate superior, that the Government can 
secure absolute certainty of results and absolute confidence on 
the part of the public, both Chinese and foreign. 

It would be understood, of course, from the beginning, that 
the whole system is to be managed on the strictest business 
principles and solely in the interests of China. 




I. Summary of work of expert organizer. — The Chinese 
Government needs foreign expert help of the nature sug- 
gested in our previous discussions, substantially as much 
if it should decide to issue merely a silver coinage without 
giving that coinage a gold value as if it attempted to establish a 
gold system. The difficulty connected with foreign experts, 
therefore, cannot be avoided by rejection of the American plan, 
and in addition to this consideration its rejection means also, 
of course, the loss of the twenty per cent, profit, the disadvantage 


of not securing a stable rate of exchange with gold, and the 
many other disadvantages of the silver system mentioned. The 
expert will be needed on the silver basis for the following rea- 
sons : 

(a) To fix the ratio to the tael at which the Government will 
accept the new coins in various parts of China when it is intro- 

(b) To see that the mints turn out coins of standard weight 
and quality, and to give the people confidence in them. At pre- 
sent this is not universally the case with any mint in China. 
Objections from business men have been heard against them all. 

(c) To organize and manage the distribution of the new coins 
and the purchase of the old coins and of bullion. Unless this is 
skillfully done the old coins will remain in circulation indefinitely 
and the new coins will have great difficulty in making their way. 

(d) He should advise regarding laws to be passed discouraging 
the circulation of old coins and of bullion. 

(e) He will be needed in the arrangement of treaties permit- 
ting the prohibition of importation of the old coins and of bull- 

(f ) His care will be needed in the detailed arrangements to 
keep up the value of the smaller silver and copper coins. 

(g) The coinage of the present copper ten cash pieces should 
be stopped very soon. He should be consulted regarding that. 

(h) He should make estimates regarding the taking over by 
the Board of Revenue of the provincial mints. 

There are other points which might be mentioned, but this is 
enough to show that an expert of the first rank is needed even if 
the gold system is not attempted. 

2. Delay inadvisable. — With the new mint approaching 
completion, part of the machinery already being on hand, there 
cannot be any long delay in reaching a decision without consid- 
erable loss to the government. Nevertheless it would be far bet- 
ter to delay the issue of the new coins for a year or more, losing 
the interest on the capital in the mint, than to make a wrong 
start from the ill effect of which it might be almost impossible 
ever to recover. 

3. Objections to system answered. — No objections have 
been raised to the gold exchange system which have not been 
satisfactorily answered, to some people at least who have taken 
the time for full consideration. In a few words are summed up 
below some of the most important objections and the line of 


answer. There is no doubt that all objections can be satisfactor- 
ily answered. 

(a) People too ignorant, — It is said that the Chinese people are 
too ignorant ; not ready ; cannot understand the new system. 

No people in any civilized country understand the details of 
the monetary system ; it is not necessary that they should. Most 
people send telegrams without understanding the process ; they 
ride on the railroads without knowing how to run an engine ; 
they take bank notes knowing nothing of the reserve. In one 
week they can be taught that the Government will take the new 
coins at a fixed valuation ; that they can always get a thousand 
of the new cash for the new dollar or a new dollar for a thousand 
of the new cash, and that they need no longer be dependent 
upon the cash shops to learn the value of their money. This 
alone will secure the hearty support of the common people, 
and it is not really necessary that they understand more. 

The merchants and business men with whom I have had an 
opportunity of discussing the matter thoroughly have practically 
all supported it heartily. The one or two exceptions were simply 
in doubt as to whether it were not better to keep a silver system 
with its fluctuations. I am convinced that those who favor the 
gambling risks in business coming from the fluctuating rate of 
exchange of a silver system are relatively few. 

To urge that China must wait until her people are educated 
would seem to argue simply a wish to avoid responsibility. 

It might be well for the new Controller to visit some of the 
leading cities before the system is introduced and explain it in 
some detail to leading business men. 

(b) China has no gold. — It is said that China has no gold. 
China can buy gold as easily as she can buy machinery. More- 
over it is as cheap for her to buy gold with her present products 
as it is to get it by mining or in any other way. 

(c) Foreigners will not receive new coins at gold value. — It is 
said that foreigners will not take the new coins in the settlement 
of debt obligations. The new coins cannot be sent abroad at 
their gold value it is true ; but the new coins can buy at their 
gold value bills of exchange with which to settle the foreign 
debts and that is far better than to send the coins themselves 
abroad. In fact coins are not sent abroad now. 

(d) System will benefit foreign nations. — It is said that it 
will benefit the foreign nations at the expense of China. 

Foreign nations are benefited only in their foreign trade with